Ford’s Profit Jumps 11% to $1.66 Billion : Record Earnings Top Rival GM’s for 8th Time in 9 Quarters
Ford Motor, on a tear that shows few signs of abating, reported Wednesday that its profit rose 11% to $1.66 billion in the second quarter, marking the ninth straight quarter that the world’s second-largest auto maker has set an earnings record.
Ford also earned more money than arch-rival General Motors for the eighth time in the last nine quarters. Until this current streak, which dates to 1986, Ford had not made more money than GM since 1924.
“Everything about the outlook for Ford right now is bullish,” said Ted Sullivan, an automotive analyst with the WEFA Group, a Bala Cynwyd, Pa., economic forecasting firm.
Ford’s overseas operations had record earnings of $760 million during the quarter, up 47.3% from last year, due mainly to strong sales in Europe, where Ford is a major force.
In the United States, however, earnings fell 8% to $903 million, despite a 7% increase in car and truck sales. The squeeze came mainly because of increasing labor, steel and raw material costs, which are rising faster than they did last year. The high cost of offering discount financing and other sales incentives also ate into earnings, Ford said.
Still, with Ford’s U.S. car and truck plants running at capacity--15% to 20% of its vehicles are now built on overtime--industry analysts and Ford officials expect earnings to stay close to current levels for the foreseeable future.
Hot New Products
“I think the next six months look very good,” David McCammon, Ford’s treasurer, said at a press conference. “We’re in real good shape in the third quarter,” typically the auto industry’s weakest, McCammon added. “We’re planning a 15% increase in third-quarter production over last year.”
Ford’s biggest strength now is that it is offering some of the hottest new products in the industry, including the Probe, built for Ford by Mazda, and the redesigned Lincoln Continental.
Ford’s share of the U.S. car market rose to 22% in the second quarter, its highest level for any quarter since 1979, and the company’s inventories of unsold cars fell to a 53-day supply, well below the 60-day supply considered normal by Detroit.
Some analysts believe that Ford, expected to earn a record $5.3 billion for all of 1988, could continue to out-earn the much larger GM for at least two more years.
Analysts note that Ford’s dramatic cost-cutting efforts during the recession of the early 1980s are now paying big dividends, leaving Ford with much lower manufacturing costs than either GM or Chrysler.
Capacity at Limit
GM is now in the midst of a similar cost-cutting program, but its sales volume has yet to increase enough for the auto maker to take advantage of lower unit costs.
“Ford is in a very enviable position,” said Jack Kirnan, an automotive analyst with Kidder, Peabody & Co.
Now, analysts say, the main constraint on Ford’s profit seems to be that Ford’s production capacity is stretched to the limit. But while Ford has $10.2 billion saved up in cash and marketable securities, the company has no plans to build any new plants to add capacity, McCammon said.
Other earnings reports, Page 6.
