Ford warns of lower 2014 profits
Dearborn – — Ford Motor Co. said Monday that recalls and troubled markets in South America and Russia will result in lower-than-expected profits in 2014. But the automaker expects to increase sales as much as 55 percent by the end of the decade.
Ford Chief Financial Officer Bob Shanks said at the company’s “investor day” that Ford will miss its original goal of between $7 billion to $8 billion in pretax profits this year. He said the Dearborn automaker now expects to make $6 billion in pretax profit, after subtracting $1 billion in warranty costs from recalls, as well as added costs from 23 new global vehicle launches and higher-than-expected losses in South America and Europe because of financial and geopolitical turmoil.
Ford expects to lose $1 billion in South America this year and another $1.2 billion in Europe, mostly due to problems in Russia. The automaker forecasts a $250 million loss in Europe in 2015, after previously predicting to turn a profit there next year.
The company’s stock price dropped 7.5 percent — by $1.22 a share to $15.11 — after the news. That closing price was Ford’s lowest since March. The stock continued to fall in after-hours trading. Ford briefly fell below $15 a share for the first time since February.
The company said it remains optimistic about the rest of the decade, estimating its sales volume will grow from 6.2 million vehicles in 2013 to 9.4 million by 2020. Shanks said it expects to post a 2015 pretax profit of between $8.5 and $9.5 billion on the back of strong sales in the U.S. and emerging markets like China.
Ford expects to introduce 16 vehicles globally — including seven in North America — next year.
“We know we have challenges in 2014,” CEO Mark Fields told investors. “But when we look at where we are in the cycle, we feel good about where we are in the cycle.”
Last week’s recall of 850,000 vehicles for an air bag issue is expected to result in a $500 million charge. Joe Hinrichs, Ford’s president of the Americas, said the recall will mean the company’s profit margins this year will be on the low end of the 8-9 percent forecast, saying it will amount to a “significant” impact on the company’s performance.
Despite the short-term challenges, Hinrichs predicted overall U.S. auto sales will grow to between 17 million and 18 million vehicles by 2020, a projection that’s more optimistic than the 17 million figure most industry analysts expect. Fields said the industry will hit about 110 million vehicles sold globally by 2020, representing $3 trillion in revenue.
Auto sales have been steadily rising since 2010 after falling to 10.6 million in 2009. Last year, sales were 15.9 million.
Last month, the annualized pace of sales hit 17.53 million, its highest since January 2006, according to Autodata Corp. Ford predicts 2014 U.S. vehicle sales will reach between 16.3 million and 16.8 million vehicles.
“Ford laid out an ambitious and optimistic plan for the future to its investors,” said Michelle Krebs, senior analyst with research firm Autotrader.com. “Ford has a good track record on delivering the numbers. The plan is heavily reliant on gaining marketing share around the world and continued success of utilities — a Ford strength — globally. Wisely, Ford is being realistic on Lincoln by recognizing the turnaround and global growth of the luxury brand is a very long-term proposition, with big payoffs not likely until the next decade.”
Fields predicted SUVs will make up 65 percent of the global auto market by 2020, and that the luxury segment could account for one-third of profits for the industry.
Ford will invest $2.5 billion in its struggling Lincoln luxury brand by the end of the decade and hopes to triple its sales volume to 300,000 vehicles by 2020.
“Ford is counting heavily on Lincoln growing in China and North America as a key component in hitting these aggressive growth numbers,” said Matt DeLorenzo, managing editor at Kelley Blue Book’s KBB.com. “In crossovers, the new Lincoln MKC will contribute to growth, but the Escape, Edge and Flex are aging, and the Fusion significantly lags Accord and Camry. Ford will also need breakout hits in its replacement for the Ford Taurus and Lincoln MKS full-size sedans to meet its goals.”
Super Duty aluminum
Ford Motor Co. executives said Monday the next-generation Super Duty pickup will be made with an aluminum body, similar to the 2015 F-150 that will debut later this year.
Raj Nair, Ford’s head of product development, announced Ford’s second aluminum-body vehicle at its investor day in Dearborn.
Largely because of its aluminum body, the 2015 F-150 will weigh about 700 pounds less than its predecessor.
Joe Hinrichs, Ford’s president of the Americas, said the automaker’s Dearborn Truck Plant changeover to make the aluminum-bodied truck is complete, after a month of downtime as new equipment was installed. Hinrichs said sheet metal began running through the plant this week.