INDUSTRY NEWSFord Discloses To SEC
The Risks Faced Going ForwardWASHINGTON, DC (March 1, 2006) - In a mandatory Form 10-K filing with the U.S. Securities and Exchange Commission (SEC), Ford Motor Co. disclosed a number of significant risk factors it faces. The filings are required of all publicly traded companies in the United States, and while these risks are specific to Ford, they provide a useful backdrop when looking at the state of some other automakers. In random order, the list of risk factors included:* Adverse effects from the bankruptcy or insolvency of a major competitor - Automakers who currently have substantial "legacy" costs (principally related to employee benefits) are at a competitive disadvantage to other competitors. A bankruptcy or insolvency of a major competitor with substantial "legacy" costs could result in that competitor gaining a significant cost advantage and could also lead to substantial disruptions in the automotive supply base.* Economic distress of suppliers that has in the past and may in the future require us to provide financial support or take other measures to ensure supplies of components or materials - Ford said it has taken and may continue to take actions to provide financial assistance to certain suppliers to ensure an uninterrupted supply of materials and components. Those actions, however impact bottom-line profits. * Continued decline in market share - Ford noted it has had a declining market share for five consecutive years to 18.2 percent in 2005. With a high proportion of costs being fixed, continued declines in market share could have a substantial adverse effect on operation results and financial condition. * Continued or increased price competition resulting from industry overcapacity, currency fluctuations or other factors - The global and intensely competitive automotive industry has overall manufacturing capacity far exceeding current demand. Continued industry overcapacity has resulted in marketing incentive and has precluded the ability to raise and hold prices to offset higher costs. * A market shift (or an increase in or acceleration of market shift) away from sales of trucks or sport utility vehicles, or from sales of other more profitable vehicles in the United States - During the past year, there has been a general shift in consumer preferences away from medium- and large-sized sport utility vehicles, which has adversely affected our profitability, Ford stated. A continuation or acceleration of this trend could be adverse. * A significant decline in industry sales, resulting from slowing economic growth, geo-political events or other factors - Automakers have little control over general social, economic or political conditions. In any given year, consumer demand may be affected significantly by these conditions, which include the availability and cost of credit and fuel. * Lower-than-anticipated market acceptance of new or existing product - Development and production costs precede buyer perception, acceptance and willingness to buy. Offering vehicles that are perceived to be less desirable can exacerbate risk even after the issues had been corrected, resulting in lower sales volumes, market share and profitability. * Continued or increased high prices for or reduced availability of fuel - Ford cited a continuing trend of increasing fuel prices or reduced availability of fuel could result in weaker demand for the relatively more profitable larger car and truck models.* Currency or commodity price fluctuations - The unpredictable nature of, and the effects of changes in foreign currency exchange rates, commodity prices and interest rates are outside the company's control, yet could have a substantial adverse effect on revenues. * Work stoppages or other interruptions of supplies - A work stoppage or an interruption or shortage of supplies for any reason, if protracted, could substantially adversely affect our results of operations and financial condition. * Single-source supply of components or materials - Some components used in their vehicles (e.g., certain engines) are available from a single supplier and cannot be quickly or inexpensively resourced to another supplier due to long lead times and contractual commitments that might be required. * Higher- than- projected costs for post-retirement benefit plans - To the extent that actual results are less favorable than projected, there could be a substantial adverse impact on the company's results * The discovery of defects in vehicles resulting in delays in new model launches, recall campaigns or increased warranty costs - Meeting or exceeding many government-mandated safety standards is costly, especially where standards may conflict with the need to reduce vehicle weight in order to meet government-mandated emissions and fuel-economy standards. * Increased financial or environmental (increased safety, emissions, fuel economy, etc.) regulatory costs or restrictions - The cost of complying with these regulatory requirements may be substantial. For example, the company's ability to comply with CAFE or greenhouse gas emissions standards depends heavily on the alignment of these standards with actual consumer demand. * Unusual or significant litigation or governmental investigations arising out of alleged defects in our products or otherwise - Compliance with governmental standards does not necessarily prevent individual or class action lawsuits, which can entail significant cost and risk. * A change in requirements for parts or materials where we have entered into long-term supply arrangements that commit us to purchase minimum or fixed quantities of certain parts or materials or to pay a minimum amount to the seller - "Take-or-pay contracts" to secure a long term supply of components or raw materials include a risk that if the need for any of these parts were to lessen, the automaker could still be required to purchase a specified quantity or pay a minimum amount.* Inability to access debt or securitization markets around the world at competitive rates or in sufficient amounts due to additional credit rating downgrades or otherwise - Recent lowering of credit ratings for Ford and Ford Credit has increased borrowing costs and caused Ford Credit's access to the unsecured debt markets to become more restricted. * Higher-than-expected credit losses - Credit risk is the possibility of loss from a customer's or dealer's failure to make payments according to contract terms. In addition, increased competition from banks or other financial institutions seeking to increase their share of financing Ford vehicles can affect revenues. * Changes in interest rates - Ford Credit is exposed to interest rate risk, and the particular market to which it is most exposed is the United States. A rising interest rate environment creates negative exposure for them, says the company.* Collection and servicing problems related to finance receivables and net investment in operating leases - Any disruption here or the inability to collect receivables could have a significant negative impact.* Lower-than-projected residual values or higher-than-expected return volumes for leased vehicles - The company's profitability could be adversely affected should either of these situations occur.* Inability to implement the "Way Forward" plan - Ford stated that any factors that prevent it from executing its restructuring "Way Forward" plan ultimately could have a substantially adverse impact on its business. (Source: SEC)
The Risks Faced Going ForwardWASHINGTON, DC (March 1, 2006) - In a mandatory Form 10-K filing with the U.S. Securities and Exchange Commission (SEC), Ford Motor Co. disclosed a number of significant risk factors it faces. The filings are required of all publicly traded companies in the United States, and while these risks are specific to Ford, they provide a useful backdrop when looking at the state of some other automakers. In random order, the list of risk factors included:* Adverse effects from the bankruptcy or insolvency of a major competitor - Automakers who currently have substantial "legacy" costs (principally related to employee benefits) are at a competitive disadvantage to other competitors. A bankruptcy or insolvency of a major competitor with substantial "legacy" costs could result in that competitor gaining a significant cost advantage and could also lead to substantial disruptions in the automotive supply base.* Economic distress of suppliers that has in the past and may in the future require us to provide financial support or take other measures to ensure supplies of components or materials - Ford said it has taken and may continue to take actions to provide financial assistance to certain suppliers to ensure an uninterrupted supply of materials and components. Those actions, however impact bottom-line profits. * Continued decline in market share - Ford noted it has had a declining market share for five consecutive years to 18.2 percent in 2005. With a high proportion of costs being fixed, continued declines in market share could have a substantial adverse effect on operation results and financial condition. * Continued or increased price competition resulting from industry overcapacity, currency fluctuations or other factors - The global and intensely competitive automotive industry has overall manufacturing capacity far exceeding current demand. Continued industry overcapacity has resulted in marketing incentive and has precluded the ability to raise and hold prices to offset higher costs. * A market shift (or an increase in or acceleration of market shift) away from sales of trucks or sport utility vehicles, or from sales of other more profitable vehicles in the United States - During the past year, there has been a general shift in consumer preferences away from medium- and large-sized sport utility vehicles, which has adversely affected our profitability, Ford stated. A continuation or acceleration of this trend could be adverse. * A significant decline in industry sales, resulting from slowing economic growth, geo-political events or other factors - Automakers have little control over general social, economic or political conditions. In any given year, consumer demand may be affected significantly by these conditions, which include the availability and cost of credit and fuel. * Lower-than-anticipated market acceptance of new or existing product - Development and production costs precede buyer perception, acceptance and willingness to buy. Offering vehicles that are perceived to be less desirable can exacerbate risk even after the issues had been corrected, resulting in lower sales volumes, market share and profitability. * Continued or increased high prices for or reduced availability of fuel - Ford cited a continuing trend of increasing fuel prices or reduced availability of fuel could result in weaker demand for the relatively more profitable larger car and truck models.* Currency or commodity price fluctuations - The unpredictable nature of, and the effects of changes in foreign currency exchange rates, commodity prices and interest rates are outside the company's control, yet could have a substantial adverse effect on revenues. * Work stoppages or other interruptions of supplies - A work stoppage or an interruption or shortage of supplies for any reason, if protracted, could substantially adversely affect our results of operations and financial condition. * Single-source supply of components or materials - Some components used in their vehicles (e.g., certain engines) are available from a single supplier and cannot be quickly or inexpensively resourced to another supplier due to long lead times and contractual commitments that might be required. * Higher- than- projected costs for post-retirement benefit plans - To the extent that actual results are less favorable than projected, there could be a substantial adverse impact on the company's results * The discovery of defects in vehicles resulting in delays in new model launches, recall campaigns or increased warranty costs - Meeting or exceeding many government-mandated safety standards is costly, especially where standards may conflict with the need to reduce vehicle weight in order to meet government-mandated emissions and fuel-economy standards. * Increased financial or environmental (increased safety, emissions, fuel economy, etc.) regulatory costs or restrictions - The cost of complying with these regulatory requirements may be substantial. For example, the company's ability to comply with CAFE or greenhouse gas emissions standards depends heavily on the alignment of these standards with actual consumer demand. * Unusual or significant litigation or governmental investigations arising out of alleged defects in our products or otherwise - Compliance with governmental standards does not necessarily prevent individual or class action lawsuits, which can entail significant cost and risk. * A change in requirements for parts or materials where we have entered into long-term supply arrangements that commit us to purchase minimum or fixed quantities of certain parts or materials or to pay a minimum amount to the seller - "Take-or-pay contracts" to secure a long term supply of components or raw materials include a risk that if the need for any of these parts were to lessen, the automaker could still be required to purchase a specified quantity or pay a minimum amount.* Inability to access debt or securitization markets around the world at competitive rates or in sufficient amounts due to additional credit rating downgrades or otherwise - Recent lowering of credit ratings for Ford and Ford Credit has increased borrowing costs and caused Ford Credit's access to the unsecured debt markets to become more restricted. * Higher-than-expected credit losses - Credit risk is the possibility of loss from a customer's or dealer's failure to make payments according to contract terms. In addition, increased competition from banks or other financial institutions seeking to increase their share of financing Ford vehicles can affect revenues. * Changes in interest rates - Ford Credit is exposed to interest rate risk, and the particular market to which it is most exposed is the United States. A rising interest rate environment creates negative exposure for them, says the company.* Collection and servicing problems related to finance receivables and net investment in operating leases - Any disruption here or the inability to collect receivables could have a significant negative impact.* Lower-than-projected residual values or higher-than-expected return volumes for leased vehicles - The company's profitability could be adversely affected should either of these situations occur.* Inability to implement the "Way Forward" plan - Ford stated that any factors that prevent it from executing its restructuring "Way Forward" plan ultimately could have a substantially adverse impact on its business. (Source: SEC)
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