EARNINGS : Strong European Car Market Boosts Ford Profit to Record $1.64 Billion
Despite a decline in its U.S. automotive profits that may be an early sign of an economic slowdown, Ford posted record earnings on a corporate-wide basis of $1.64 billion.
Ford also reported record sales of $25.9 billion, raising the possibility that Ford could break the $100 billion annual sales barrier this year for the first time. Ford officials also noted the traditional lead in total revenues General Motors held over Ford in the first quarter was the narrowest it has been in recent history.
Much of Ford’s success in the quarter came as a result of the ongoing boom in the European car market, where both Ford and GM play major roles.
$150 in Added Costs
But while its factory sales to dealers of cars, trucks and tractors in the United States were up slightly during the first three months of the year, retail sales by its dealers were down. The difference led to rising inventories of unsold cars sitting on dealer lots, prompting Ford to spark the latest round of sales incentives in late March.
Despite the fact that the sales incentives have helped buoy sales in recent weeks, Ford officials are now convinced that a slowdown in the economy in general and car sales in particular has begun. As a result, Ford Treasurer David McAmmon predicted at a press briefing at Ford world headquarters here that Ford’s earnings will be down for the rest of the year from the records posted in 1988.
He said the high costs of offering cash rebates, discount financing and other sales incentives to buoy the market--the latest incentives have added $150 in costs for every car Ford sells--will put heavy pressure on Ford’s profit margins.
“The squeeze on profits could continue,” McAmmon acknowledged.
Ford’s U.S. car production schedules, which have been running at full bore for years, are also starting to ease up. McAmmon said that Ford plants are operating at 112% of straight-time capacity so far in the second quarter--with 12% of its cars being produced on overtime--compared to a 117% operating rate in 1988.
Ford Prepares for Slump
Such a modest slowdown at Ford, Detroit’s premier money-maker, may indicate a broader economic decline, noted McAmmon.
“We think there will be a slowdown, but not a recession, in 1989,” said McAmmon. “We think there will be a soft landing, and that’s good. It should reduce pressure on inflation.”
Ford has been preparing for a slump and took some cautious actions to protect itself in the first quarter. The company paid off $700 million in debt in the quarter, while it has also further pruned its salaried work force; its salaried ranks have declined by about 1% since last year.
McAmmon and other officials also noted that Ford’s decision not to build a new assembly plant to accommodate its surging sales in recent years now means it won’t be saddled with idle factories in any slowdown.
Ford Surprises Analysts
In fact, in a new study on production in the auto industry released Thursday by Autofacts, a Paoli, Pa., market research firm, Ford received high marks for controlling its production levels in a market increasingly faced with a glut of cars.
Wall Street analysts, surprised by Ford’s stronger-than-expected showing in the first quarter, now add that Ford is in a better position to weather a downturn than either GM or Chrysler.
Jack Kirnan, an automotive analyst at Kidder, Peabody, predicts Ford will earn $4.8 billion for all of 1989, down slightly from last year’s record $5.3 billion. He added that such a performance in the midst of a slowdown should please Wall Street.
