From Volume 5, Issue Number 32 of EIR Online, Published Aug. 8, 2006

U.S. Economic/Financial News

Has There Been a 'Rohatyn Signature' at Ford?

Ford Motor Co. on Aug. 2 reported a second-quarter loss that was double what it had just reported July 31—up to $254 million from the earlier report of a $123 million loss. Since this loss is overall, including Ford Credit financial operations and services as well as automotive production and sales, it was already Ford's first loss quarter of recent years, and was "unexpected" by hovering analysts. By comparison, GM lost nearly $3.4 billion for the quarter (and also had to revise its loss upwards from the first-reported $3.2 billion; but since GM's huge losses represented the costs of austerity—closing plants, getting rid of 50,000 auto workers in two months—these losses were welcomed by the globalized financial and auto markets, as doctors applying leeches used to welcome the copious letting of blood which often killed the patient in a matter of days. But now it's Ford's turn in the tank—along with Chrysler, which announced it expects to lose $600 million in the third quarter.

Immediately, CEO Bill Ford III sent out a letter to employees stating that "everything is on the table." Just as abruptly, Ford hired the Kenneth Leet, managing director of both the Merger and Acquisition Department, and the Investment Banking Division of Goldman Sachs over the past 18 years, "to work directly for William Ford as advisor." Leet is "to work with senior management on assessing the company's plans"; i.e., he's being given authority for a reorganization plan for the company. Is he also supposed to give Ford an inside track with former Goldman Sachs chairman, now Treasury Secretary, Hank Paulson?

Ford is particularly concerned, say its releases, about its "Premier Division" (Jaguar, etc.) making losses, since rich-niche cars are money-makers for the other automakers now.

North American Auto Sales Collapsed Across the Board

As to the serious consequences of collapsed sales for Ford and Chrysler in particular, the Total industry-wide auto/SUV/light-truck sales for July show an important economic-collapse trend. In the United States, total sales in July 206 were 17.4% lower than in July 2005—by far the biggest drop in the six months of year-to-year drops so far this year. Taken as an economic indicator, this is a very bad one, with implications for the jobs lost in July. Americans and automakers alike are being crushed by hyperinflated energy—and other—prices, just as the major airlines were (and oil went back over $76/barrel on Aug. 2); this was combined with the loss of well-paying jobs by the tens of thousands.

The auto sales figure of 1.49 million total sales for the month is well below forecasts of about 1.65 million; and July is supposed to be the leading auto-sales month of the year. An additional report was released Aug. 2 on Canadian car sales; they fell 8.5% from July 2005, and are now 1% below 2005 for January-July as a whole.

DaimlerChrysler, Ford Auto Sales Plummet in July

DaimlerChrysler motor-vehicle sales in the United States fell from 260,937 in July 2005, to 171,940 in July 2006, a fall of 34%, it was reported Aug. 1. During the same time period, Ford's motor-vehicle sales fell from 366,548 to 241,339, also a fall of 34%., an auto industry research and forecasting company, had gloomily forecast in a July 27 press release, that for the period of July 2006, compared to July a year ago, auto sales for Chrysler and Ford would fall by 20% and 26%, respectively. Even those dire forecasts underestimated the pace of actual collapse. It is the case that July 2005 saw the largest single month auto sales in U.S. history, but that accounts for only a portion of the decline.

Lyndon LaRouche commented, "The destruction of Ford and the auto industry can be traced to the benchmarking which we exposed at the time. They used benchmarking instead of engineering. You could say that the auto industry was destroyed by design, with Ford as the leader in the Ford Explorer."

The sales at Ford are doubly ominous because, for July 2006 compared to July 2005, its sales of trucks, vans, and SUVs plunged by 43.8%. Importantly, sales of trucks, vans, and SUVs constitute two-thirds of all Ford sales in the U.S. Moreover, according to the Michigan Transportation Research Institute, light trucks—like Ford's F-150 series—are pure cash cows, earning U.S. automakers $4,000 to $5,200 per vehicle. As that source of profit falls, the source of cash flow that kept Ford from imploding, disappears.

What is happening is that two policy curves are intersecting: the curve of the financiers who are intent on shutting down U.S. internal auto production; and that of the speculative commodities hyperinflation, which has made the cost of a motor vehicle's tankful of gas nearly $50.

The auto companies, in an attempt to defy the laws of gravity, have upped their vehicle incentives. In July of this year, Daimler Chrysler, Ford, and GM offered incentives packages of $2,634, $3,919, and $4,578, respectively, which did no good. Unless Congress forcefully adopts LaRouche's Economic Recovery Act, there will be no valuable machine-tool capacity left in America's auto sector by Christmas.

All rights reserved © 2006 EIRNS