Ford Profits Fall 17.5% in Quarter

Ford said Friday that its net earnings fell to $313.1 million in the third quarter, down 17.5% from last year’s $379.7 million, as a result of the heavy costs of the sales incentives that it offered from August to early October in order to reduce its heavy inventories of unsold 1985 model cars.

But, despite the 7.7% discount financing that it offered on car loans in the United States during the quarter, Ford’s worldwide car, truck and tractor sales fell 2% during the period, further depressing its earnings.

Worldwide sales in dollar terms fell to $11.63 billion, down 1.8% from last year’s $11.84 billion.

The company’s operating earnings before taxes were just $155.2 million for the quarter, down 57.2% from last year’s $362.7 million. Ford didn’t reveal how much of those operating earnings came from its U.S. factories, but a Ford spokesman said the company’s U.S. operations were profitable during the period.

Ford’s net profits would have been even smaller had not the firm’s unconsolidated subsidiaries, primarily its Ford Credit finance arm (which handled the sales incentives), reported earnings of $134 million, up 14.7% from last year’s $116.8 million. Ford Credit’s earnings of $96 million were up 17% from last year, mainly because of the increase in its lending volume due to the 7.7% sales incentive program.

Like the other major domestic auto makers, Ford offered the costly sales incentives in late summer in order to clear out its inventories of unsold cars that built up when a strike by unionized car hauling truck drivers stopped the flow of new cars from factories to dealer showrooms. The incentives reduced those inventories, but they have depressed the third-quarter earnings of all of the major auto companies.

Earlier this week, General Motors reported a $20.9-million loss on its operations for the quarter because of the heavier-than-expected costs of its 7.7% discount financing program. Its net earnings of $516.5 million were up from last year’s levels, but mainly because of the record earnings of its finance subsidiary, large tax benefits and because its earnings for the same period in 1984 had been depressed by strikes. Chrysler, meanwhile, is expected to report third-quarter earnings Monday. Those figures won’t reflect the costs of its U.S. and Canadian strikes, however, because those walkouts began after the third period ended.

For the first nine months of the year, Ford’s profits were also down. It earned $1.795 billion during the first three quarters, down 17.9% from last year’s $2.186 billion. Worldwide sales rose only slightly during the same period, to $36.467 billion, up just 0.2% from last year’s $36.382 billion.

Now, with domestic car sales increasingly showing signs of weakness, analysts warned Friday that Ford and the other U.S. auto makers will probably be forced to offer widespread sales incentives throughout 1986, further depressing earnings for the foreseeable future.

“Incentives will be a way of life for the industry in 1986, and so they are going to have to learn to live with the costs of these programs,’ said Harvey Heinbach, automotive analyst with Merrill Lynch.