Ford slows rebates as profits dip
The automaker tells Wall Street its new models will help its bottom line in 2005.
By Eric Mayne / The Detroit News
Ford Motor Co. promised investors Tuesday its automotive operations will deliver solid profits this year -- even after a slow start -- but overall company earnings will fall as much as 17 percent on weaker results at its finance arm.
The automaker is counting on a strong overall market, successful new models, increased market share and flat incentive spending to help it more than double its automotive profits to $1.5 billion to $2 billion this year. Last year, Ford's global car and truck business earned $850 million -- below a company target of $1 billion.
An 8.7 percent cut in North American car and truck production, higher health care and material costs will dampen the automaker's first-quarter profits.
"We have challenges to face, and we know it," Ford Chairman and CEO Bill Ford Jr. said. "But we've faced those challenges before. ... We want to build on the momentum we've created and move from merely competing, to winning."
It was the first time Ford executives offered specific guidance on the company's 2005 profit outlook. Ford stock closed at $13.23, up 16 cents, after a broad rally among all stocks Tuesday in New York Stock Exchange trading.
Ford's crosstown rival General Motors Corp. forecast it would make $1 billion less in 2005 than it did last year. DaimlerChrysler AG's Chrysler Group will announce its 2004 earnings Feb. 10.
In addition to improved North America results, Ford is counting on its struggling Premier Automotive Group -- made up of Jaguar, Volvo, Land Rover and Aston Martin.
Ford sees the group swinging from a 2004 loss of $740 million to a pre-tax profit of $300 million to $600 million this year.
While Land Rover will benefit from two new models, slumping Jaguar sales and unfavorable currency exchange rates that have dogged the unit will continue in 2005, analysts say. Ford expects to take a $100 million charge in 2005 for additional restructuring moves at Jaguar, including a plant closing.
"Given PAG's lackluster performance in the fourth quarter of 2004, we see this as the component of Ford's guidance with the most downside risk," JP Morgan auto analyst Patel Himanshu said in a report to investors.
Ford expects overall 2005 pre-tax earnings of $5 billion to $5.7 billion, down 17 percent from 2004. Rising interest rates and smaller loan volumes will produce lower pre-tax earnings of $3.5 billion to $3.7 billion in 2005 at Ford Credit, down from a record $5 billion in 2004.
The $5.7 billion in estimated pre-tax earnings marks a significant turnaround from $6.4 billion in net losses the automaker sustained in 2001 and 2002.
Ford hopes to aggressively hold down incentives on newly launched products and limit sales to rental customers.
"We very cautiously work on incentives. That's a key element of our revenue management," Ford Chief Operating Officer Jim Padilla said. "We use an eyedropper to give it just enough to keep it moving, but not so much that it tanks our bottom line."
December marked the third straight month Ford lowered incentives, according to Edmunds.com. But its U.S. market share fell by 0.5 percentage points to 17.4 percent.
Ford attributes the market share decline to its withdrawal from the daily rental car market, which generates smaller profits and erodes residual values. And when low-priced rental cars return to a dealer's used car lot, they sometimes cannibalize new vehicle sales.
Ford said there is early evidence the strategy is paying off with higher resale values. While luxury cars in general fetched $3,156 less at auction last year than they did in 2003, a typical Lincoln Town Car sold for $261 more than it did the previous year.
"It's better for the bottom line to back away from bad business," Padilla said.
To date, Ford has sold none of its new sedans -- the Ford Five Hundred and Mercury Montego -- or the new Ford Freestyle crossover to rental car companies.
Ford is cutting first-quarter output in North America to 920,000 units, down 8.7 percent from the first quarter of 2004. Last year, Ford hiked output to boost inventories in anticipation of lower output later in the year when several factories were retooled for new models.
But Dave Berry, president of United Auto Workers Local 36, fears more cuts. He represents assemblers and skilled trades personnel at Ford's plant in Wixom.
Wixom builds the Town Car, Lincoln LS and Ford Thunderbird. The latter is being phased out of production and Ford has not said which, if any, new vehicles it will build at the site.
"You're always waiting for official word," Berry said.
Ford has not disclosed plans for the plant, whose workers staged a protest outside company headquarters last week. Padilla said there is no imminent threat to jobs, but did not offer any long-term guarantees.
"Our capacity is reasonably well-aligned with what we think (we) can sell," Padilla said. "Should the market demand change, we're prepared to do what's necessary ... keeping in mind the needs of the business and what we think is our obligation to take care of our people."
Bill Ford is satisfied with the company's slow, but steady progress -- despite the Premier Automotive Group's slump. He said the automaker is on track to meet the $7 billion annual pre-tax profit goal he set as part of a "revitalization plan" unveiled three years ago this month.
"When we laid this plan out at the beginning of 2002, it really was met with a great deal of skepticism that we could even make the first year," Ford said. "Back then, we did not have a stable management team. We do now. We didn't have the sense of confidence that we do now. And we didn't have the sense of focus on the fundamentals that we do now."