Automotive Industry: Carmaker Ford Facing Dire Financial Crisis

Fears are mounting over a potential cash crisis at America's top carmakers after Ford warned that its losses are running into billions as the rocketing price of petrol keeps customers out of its showrooms.

The company's second profits warning in a month prompted Standard & Poor's to reveal that it is considering cutting the credit ratings of all three major Detroit-based manufacturers - Ford, General Motors and Chrysler. It cited cash outflows and the "dire state" of the vehicle finance market.

Ford's shares dived by 8% while GM's stock slumped by 6.7%. The slump in motoring stocks, together with fresh fears of losses at leading banks, contributed to a gloomy mood on Wall Street as the Dow Jones Industrial Average dropped 220 points to 11,842.

Alarmed by the cost of a tank of petrol, consumers are seeking more fuel-efficient cars. Ford's traditional specialty of pickup trucks and sports utility vehicles has left it particularly badly exposed and so the company is shifting its production in the US to introduce European favorites such as the Fiesta and the Focus.

Ford's chief executive, Alan Mulally, said the trend was no flash in the pan: "We view the move to smaller, more fuel efficient vehicles as permanent."

The company said it would fare worse this year than its $2.7bn (£1.3bn) loss in 2007. In a sign of the enduring nature of its difficulties, it believes it will struggle to break even next year.

In cutbacks likely to mean more job losses in Ford's already reduced workforce, the number of vehicles rolling off the company's production lines will fall by 25% year-on-year in the third quarter and by between 8% and 14% in the fourth quarter.

Ford is delaying manufacturing of a new version of its F-150 pickup truck which was launched with a performance by country music star Toby Keith amid great fanfare at the Detroit motor show in January.

The billionaire Las Vegas casinos tycoon Kirk Kerkorian recently bought a 5% stake in Ford and has met senior executives to discuss the prospects for a turnaround.

Experts believe Ford may be forced to raise extra cash, having already mortgaged most of its assets including its blue oval logo to generate $23.5bn in 2006.

"This is a tough situation," said David Healy, a motor industry analyst at Burnham Securities. "They are probably going to do more financing. They might even take money from Kerkorian."

Experts say that American car manufacturers are less flexible in technical terms than their Asian counterparts who are able to build either small cars or large vehicles on the same production lines, allowing them to respond quickly to changes in demand.

The entire motor industry is feeling the pinch. GM is considering selling its military-style Hummer brand which is loathed by environmentalists for its poor fuel consumption.

Elsewhere, in Milan today, Fiat shares dived by 9% to a two-year low as its chief executive described car sales as a "disaster" following a 17.6% drop in the number of new vehicles sold in Italy during May.