Investors drive Ford stock down
Shares fall after forecast is lowered; Lyons to head sales, marketing and service.
By Eric Mayne / The Detroit News
Investors, unhappy with Ford Motor Co.'s abrupt profit warning late Friday, pushed the automaker's shares down as much as 8 percent Friday, and analysts warned that more North American production cuts are on the horizon.
Separately, Ford revamped its North American sales and marketing operations Monday following the surprise departure of Earl J. Hesterberg, group vice president of sales, marketing and service. Hesterberg, 51, named to the post last October, is leaving to become CEO of Group 1 Automotive Inc., a Houston-based collection of 96 auto dealerships.
Ford Division President Steve Lyons will succeed Hesterberg, and Darryl Hazel, former president of Lincoln-Mercury, will replace Lyons. Al Giombetti will now head Lincoln-Mercury.
After Ford cut its 2005 earnings outlook by about $900 million because of slumping sales -- led by weak SUV demand, high gas prices, and weak pricing -- analysts expect the automaker to cut second-quarter car and truck production.
When the automaker backed away from a pledge to earn $7 billion in annual pretax profits by 2006, investors pushed Ford shares down Monday to $10.44, off 59 cents, or 5 percent, from Friday's close. The shares closed 50 cents below a 52-week low of $10.94. General Motors Corp. shares also fell Monday as investors worried.
In another blow to Ford, Fitch Ratings downgraded the automaker's ratings outlook from stable to negative, joining other credit rating firms.
Like rival General Motors Corp., skyrocketing costs -- from health care to crude oil -- are battering Ford.
Analysts say Ford could cut second-quarter production up to 8 percent to offset rising material costs and the chilling effect soaring gas prices have had on sales of sport utility vehicles.
Ford's U.S. sales have dropped 5 percent this year while overall industry new car and truck demand is flat.
"What is most hurting Ford's profits is SUVs," analyst Himanshu Patel of J.P. Morgan said in a .research note Monday "Sales of midsize SUVs and the more profitable large SUVs are both down 24 percent. While there is broader SUV segment weakness, Ford is losing more ground than others."
Sales of Ford's new models such as the Freestyle crossover, Ford Five Hundred and Mercury Montego sedans have been mixed, while demand for the Ford Escape, Escape Hybrid and Mercury Mariner remain healthy.
Analysts say Ford's inventory levels -- 16 percent above average -- are skewed heavily toward SUVs such as the full-size Ford Expedition.
"It looks as if a lot of Ford's first-quarter earnings were still parked at the dealers on March 31," said David Healy of Burnham Securities.
The profit warning is a significant setback for Ford Chairman and CEO Bill Ford Jr., who launched a sweeping turnaround of the automaker in 2001.
Since 2001, Ford has closed plants, shed workers and backed off less profitable fleet sales and incentives to drive profits higher.
"The incentive strategy that was put into place after 9-11 was a stopgap," said Rod Lache of Deutsche Bank. "You've got rising fuel prices, rising plastic, rubber. ... It's very difficult to discount further while their costs are going up."
But Rob Hinchliffe, an analyst at UBS Warburg, said Ford will have to respond to competitors such as General Motors Corp.
"Gas prices aren't coming down, so it doesn't look like SUV sales are going to take off," he said. "If GM is stepping up incentives, they'll probably have to do the same."
Last week, GM reduced by $500 the customer cash available on most products. Meanwhile, Ford eliminated its zero percent, 60-month financing on its products.
"The consumers are seeing right through it," said Ken Failla, sales manager at Kruse's Stark Hickey Ford in Detroit. "It's a gimmick like anything else."