Ford slashes 2005 earnings outlook

Automaker blames expected drop in earnings on health care and materials expenses.

April 8, 2005: 5:10 PM EDT

DETROIT (Reuters) - Ford Motor Co. cut its 2005 earnings forecast Friday and said it no longer expects to reach its long-term profit goal of $7 billion before taxes by 2006 due to rising raw material and health care costs.

The second-largest U.S. automaker cut its 2005 earnings forecast to a range of $1.25 to $1.50 per share from its previous estimate of $1.75 to $1.95 per share.

Ford shares fell almost 5 percent to $10.49 in after hours trading.

The forecast excludes the effect of special charges, which are estimated to be in the range of 8 cents to 10 cents per share for the full year.

Wall Street analysts on average expect Ford (Research) to post earnings of $1.68 per share in 2005.

Ford's 2005 revised outlook comes as it continues to lose market share to domestic and Asian rivals. The company's U.S. sales have declined 5.2 percent so far this year.

Ford faces many of the same problems as rival General Motors Corp. (Research), which warned last month that it will post its weakest first-quarter earnings since 1992, and profits this year could fall as much as 80 percent below its previous forecast.

"Although one of our strongest ever product line-ups has been well received by consumers around the world, we are not immune to the broad economic challenges we all face in our industry," Ford Chairman and Chief Executive Officer Bill Ford Jr. said in a statement.

"Obviously there are actions we could take to achieve our pre-tax profit goal of $7 billion for 2006, but we will not mortgage Ford's future by chasing an objective set under vastly different market and economic conditions," Bill Ford said.

The $7 billion target is a crucial milestone in the five-year turnaround plan Ford launched in January 2002, when the industrial icon was teetering on the brink of financial collapse.

Ford had cautioned last month that its full-year 2005 earnings would be at the lower end of its forecast range.

Automotive pre-tax profits in 2005 would be break-even at best, the company said.

The automaker said first-quarter earnings per share will exceed previous guidance of 25 cents to 35 cents and full-year automotive operating cash flow is still expected to be positive.

 

They can't say anything yet, but the earnings will also be affectecd by a deal with their largest supplier. Expect Ford to take a major writeoff between now and the end of the 3rd quarter.

 

The problem for both GM and Ford claim material costs and healthcare as their main problems but their is virtually nothing either can within the US to solve these problems except have mass layoffs and then move manufacturing off shore.

Not only will ford and GM have to worry about healthcare and material cost but now they have to worry about low sales that will only acerbate the problem.

 

This is why the big 3 are completely in favor of government health care.

Elsewhere, foreign automakers don't have to worry about this issue because healthcare is either heavily managed or is subsidised by it's the country's government. When they open up shop here, they don't have the same overly generous packages that the UAW demand without giving something in return, yet still manage to pay almost on par with what the UAW gets for it's workers.

But the bigger reason for US automaker's woes IMHO are years of not investing in cars. GM's part in this has been beaten into the ground, but Ford doesn't escape scrutiny. Though the Mustang is a smash hit, the FiveHundred seems to be moving along just "OK" like the G6. Not enough to make up for the drop in SUV sales.

Automakers seem like they understrand the quality aspect of things. The G6 & Five Hundred are very solid pieces. But you can't make a Toyota Camary and expect people to rush to your car. All things equal, people will still buy Toyotas because of reputation. But make a quality car with styling flash and performance Toyota doesn't have, like the Chrysler 300 & Magnum, and as Chrysler is showing, you don't have to complain about nickels & dimes because you'll be making dollars.

 

1. There isn't a "big 3" anymore. Actually, there isn't a big "2 and a half." There's the "Big 2." Technically, the "home team" is down to just GM and Ford. Chrysler is pretty much German controlled these days and really shouldn't even be counted as a "half."

2. Before anyone starts to gripe about Redzed refering to the domestic automotive industry as the "big 2," the non-believers should remember that the Japanese automotive industry is down to the "big 2" as well. Toyota and Honda are the last two major non-captive, Japanese controlled automotive companies.

3. I can believe that GM and Ford would like to see the Federal government shoulder the reponsibility for health care costs. I'm sure they'd also like to see the gas guzzler tax and CAFE standards replaced with additional gasoline taxes. Of course, GM and Ford don't have much clout on Capitol Hill.

I think it's ridiculous to suggest that Ford and GM need socialized healthcare to compete with the transplanted foriegn manufacturing base. If GM/Ford can't negotiate with the UAW, that's not society's problem.

GuionM, I think you're missing the obvious. Until the recent deluge of cars in the last year or so, I would have agreed that underinvestment in passenger cars was at the heart of Detroits' many problems. Now that I seeb so much capital shifted to cars, I honestly believe that the domestic nameplates have underinvested in light trucks and SUVs..

Of course, maybe the problem is that after all of the years of underinvestment in passenger cars GM and Ford still lack the engineering and production infrastruction to produce a world class passenger cars. Keep in mind, that without access to Mercedes' parts bin, the Chrysler portion of Daimler-Chrysler could never have turned out the the LX cars.

 

If Detroit was so much into trucks and SUVs, why hasn't Chrysler had any problems now? The 300 and Magnum are not going to support Chrysler.

Just curious?

 

1. Big 2? Good point.

2. I think GM & Ford would rather see class fuel economy instead of CAFE.

3. GM and Ford does have plenty of clout. Many factories are in congressional districts, and about 1 in 4 jobs in the US are directly or indirectly related to the auto industry.

3. Our devalued dollar is making it cheaper to make foreign cars here.

4. There has been some investment in cars lately, but most of that investment hasn't hit the streets yet. Chrysler has the 300 & Magnum, but the rest of it's cars date back at least 4 years. Ford has the Mustang and the Montego-Five Hundred. But the last real new car they had was the Thunderbird. GM is bringing their cars out in such a slow fashion, I'll be retired by the time they finish this round of "W" body redesigns (Grand Prix was done in 2002, and they are finally getting to Impala in 2006? WTF!

5. Chrysler was well on it's way in creating the RWD LX cars by 1999 using their own components.

 

Actually the 300 and Magnum are largely responsible for Chrysler's 12 months of continuous growth.

A company as small as Chrysler that's shed something like 1/3 of it's workforce the past few years is making serious bank on a carline that's running about 150,000+ annually and doesn't need rebates.

 

150k plus and growing with the addition of the Charger.

Guy said it. They can sight healthcare all they wish but the fact of the matter is, they've ignored a key market for much of the past 15 years, that being cars. The Japs took that over and are now aiming for the trucks. Things will change in another 10 years that's for sure. I'd just hate to think of the Ford of today as the Hyundai of tomorrow.

 

Chrysler was well on it's way to creating the RWD LX for MY1996 before Lutz and Eaton killed it! Of course, there was a second attempt at a RWD LX that started before the Daimler-Chrysler merger. The big problem for both the mid-90s and late-90s LX projects was that Chrysler lacked a decent powertrain for a performance flagship.

 

Well I've been saying Big 2 for the past 3 years.

I'd a say the 4.7 OHC V8 would have been adequate for a late '90s RWD sedan. Chrysler could have tuned it to near 300hp. But the Hemi was coming, and we would have had a ground pounding Hemi 300, take-over or no take-over.

MB has definitely added value with the magnificent 5spd autos they make.