Substantial losses predicted for Ford, Chrysler As Imports Take The Biz

The Detroit Free Press reported today that a large number of buyers who in the past would have been a slam dunk customer for Detroit Iron, are forsaking domestic vehicles for imports, and is hurting Detroit's automakers.

While U.S. vehicle sales at Ford, General Motors and the Chrysler Group of DaimlerChrysler AG are down 8.9 percent through June; sales of cars and trucks at all other automakers are up 5.4 percent.

They went on to report that “in a desperate attempt to revive sales and recapture market share, the U.S. automakers are offering record incentives, which means lower profits. Coupled with that, tire-replacement costs at Ford and a massive reorganization at the Chrysler Group are expected to slash U.S. automakers' combined second-quarter profits by an astounding $5 billion or more from a year ago.

Last year the three made a combined $5.55 billion in second-quarter operating profits.” Wall Street auto analysts project Ford and Chrysler both will lose money -- a combined $820 million or more. A year ago, the two combined to make $3.8 billion in the April-June period.

For Ford, it would be only the second loss in 34 quarters or more than eight years. The Dearborn automaker, of course, has been hit hard by the $3-billion bill for replacing 13 million Firestone tires. But even with that taken out of the picture, Ford is still projected to make $1.3 billion less than a year ago as higher incentives lower sales, particularly of high-profit trucks and sport-utilities.

The paper went on to report that, “GM, the sole member of the trio projected to make money, will nonetheless see profits drop by over $1 billion, or more than 42 percent, because of lower sales and higher incentives. In 1997 Ford, GM and Chrysler earned $14.9 billion, or $826 per vehicle sold, according to a report from investment bank Goldman Sachs.This year, by comparison, those three automakers will earn about $304 per vehicle.

For the quarter, Ford is projected to lose about 34 cents per share or about $620 million. In the second quarter of last year Ford lost 47 cents per share or $577 million, but most of that was due to a $3.3-billion charge for closing plants in Europe and the spin-off of Visteon, its former parts operation. Without that one-time charge, Ford made $2.20 per share or $2.69 billion a year ago.

Chrysler Group, in the midst of a massive restructuring, is forecast to lose about $200 million in the second quarter, which is actually an improvement from previous projections of a $500-million loss. A year ago the Auburn Hills maker of Chrysler, Jeep and Dodge vehicles made $1.1 billion and helped push the whole DaimlerChrysler AG to profits of $1.66 billion. The combined German-American company, which includes Mercedes-Benz and other non-U.S. operations, is expected to break even in the second quarter, according to John Casesa, auto analyst for Merrill Lynch. GM is projected to make about $1.13 a share, or about $645 million, down from $2.93 a share or $1.75 billion last year. Because GM sold so many more trucks than expected and did with it lower incentives, Casesa says the company might make up to $1.20 a share, or about $685 million. "General Motors really could be the surprise for the quarter. Their performance was quite positive," he said. Of course, it could have been just a little better quarter for GM had Gray not turned his nose up at the new Suburban, which he said "felt downsized, too small for me." Susan Jacobs, president of Jacobs & Associates, an auto-sales analysis firm, said, "All of the Big Three are just losing sales badly even though they've got all sorts of incentives out there. That to me is really worrisome. I don't see a lot that's positive in their second quarter." No solace in numbers Second-quarter vehicle sales by all makers slipped by just 3.5 percent from a sizzling second quarter of a year ago, thanks to strong showings by foreign automakers like Toyota and Honda, plus rising incentives at Ford and Chrysler. Ford, for example, in June raised incentives such as rebates and lower financing by 40 percent or $691 per vehicle compared to a year ago. The average incentive on a Ford product was $2,420, according to Autodata, a New Jersey sales-analysis firm. Chrysler in the same month raised incentives 17.9 percent, or $389 per vehicle, to an average of $2,498 per vehicle, the highest of any U.S. automaker and second only to Mazda. GM, spurred on by hot new trucks that required no financial enticements, actually reduced incentives by 1.1 percent in June, although the other two months were higher than last year's. GM's performance "will be enough to help some of the suppliers, like Delphi and American Axle who do a lot of business with GM, but it's tough to call it a good quarter because the automakers had to use incentives to move their higher profit-margin trucks," said Casesa. Also likely to be hurt are auto-parts makers, especially those like Visteon Corp. or ArvinMeritor Inc. that get much of their business from Ford or Chrysler.

Quarterly auto sales at those two were down far more than at GM. Casesa's analysis shows the average incentive on a new car or truck in June was $1,991 per vehicle. All U.S. automakers were above the average, while foreign automakers such as Toyota, Honda and Volkswagen were far below. Despite the incentives, sales at Ford, GM and Chrysler for April, May and June slipped. The drop was especially steep at Ford, where sales were off 11.6 percent from last year's second quarter, and Chrysler, which was down 8.6 percent. GM sales also were down 5.8 percent from the same time a year ago, but the world's largest automaker saw truck sales improve by 1 percent, which is important because trucks typically are more profitable than cars. It also is a segment U.S. automakers have had a lock on, until now. Ford truck sales dropped 8.2 percent while Chrysler's fell 7.6 percent. At the foreign automakers, sales mostly pointed up. Toyota, the world's fourth-largest automaker, saw U.S. vehicle sales jump 12 percent. Toyota truck sales -- driven by the Sequoia, the Tundra sport-utility and the Tacoma pickup -- were up an astounding 26.4 percent. Vehicle sales at Japan's Honda and Germany's Volkswagen, the No. 3 automaker, were both up around 3 percent.