April 28, 2012

Ford Motor Co. will offer about 90,000 U.S. salaried retirees and former employees vested in its pension plan a lump-sum payment to buy them out of monthly benefits.

Ford, which also reported lower first-quarter earnings Friday because of losses in Europe and Asia, said the plan was an innovative strategy to reduce its pension obligations.
 
The automaker won't put up any operating cash but rather will make the one-time payments from existing pension plan assets.

"We believe this is the first time a program of this type and magnitude has been done in an ongoing pension plan," said Bob Shanks, Ford's chief financial officer.

If an individual elects to receive the lump-sum payment, the company's pension obligation to the individual will be settled. Ford said it was working with federal regulators on how to execute the plan. The payouts will start later this year.

"It is really important that we improve the risk profile of the company," Shanks said.

Ford also said it could expand the program to its hourly union employees, subject to an agreement with the United Auto Workers union.

The automaker has a U.S. pension obligation of about $49 billion.

The strategy could reduce both Ford's pension obligations and assets, said Robert Schulz, an auto analyst at Standard & Poor's. But it unclear how many will take up the offer.

"This is relatively untested and how many people will take it and what the final outcome will be is hard to judge," said Schulz. "We view it as a modest positive in the long run even if it doesn't have an immediate impact."

It also lets workers avoid the risk of future problems in the auto industry by cashing out now, while the company is doing well.

The automaker continues do to well in the U.S., the company announced Friday, posting for the quarter its highest operating profit in North America in more than a decade.

Although its U.S. market share fell to 15.2% in the quarter from 16% a year earlier, it is making more money per car sold.

Ford's North American business logged an operating profit of $2.1 billion, compared with $1.8 billion a year earlier.

Brian Johnson, an analyst at Barclays Capital, noted that Ford's 11.5% operating profit margin in North America was particularly strong.

Overall, Ford earned $1.4 billion, or 35 cents a share, down 45% from the $2.6 billion, or 61 cents, a year earlier.

Sales also slid, falling 2% to $32.5 billion from $33.1 billion.

Operating profit in South America slid to $54 million from $210 million.

Ford's European operations lost $149 million, compared with a profit of $293 million a year earlier. The automaker was hurt by the Eurozone debt crisis and poor economic conditions in the region. This year, Ford expects to incur a loss in Europe of $500 million to $600 million, Shanks said.

Ford's Asian operations lost $95 million, compared with a profit of $33 million in the same period last year.

"Our team delivered a solid performance during the first quarter, with particularly strong results in North America, despite a challenging global external environment," said Alan Mulally, Ford's chief executive.

The automaker forecast that earnings in the second half of this year will be higher than the first half.

Ford shares fell 27 cents to $11.60.