Ford downbeat on US economy - Sour Grapes or What?

Chicago July 16, 2003: Jeremy Grant writing for the FT reported that Ford Motor Company on Wednesday said it saw no sign of a turnround in the US economy and cast doubt on economists' repeated predictions of an imminent recovery.

The downbeat assessment came as the world's second largest carmaker reported a 27 per cent fall in second-quarter earnings, with consumer financing incentives and weak sales continuing to erode profits. Ford shares fell more than 5 per cent to $11 by midday in New York.

Allan Gilmour, chief financial officer, said: "There's not much strength at all in the US economy. When you talk to business people, you don't see much sign of a turnaround. Economists were predicting one a year ago but that's not happened."

"We're not planning on any substantial upturn either this year or when we go into the early part of next year," he said.

Ford's global automotive operations made only $3m in the second quarter, against $403m a year ago. Analysts say Ford looks set to achieve a full-year earnings per share target of 70 cents a share, but there are still doubts about its ability to break-even in automotive operations by the year end.

This target is vital if Ford is to maintain its credit rating. Any downgrade would restrict the access of its finance arm, Ford Credit, to the capital markets, which many analysts say could increase bankruptcy risk.

Scott Sprinzen, auto analyst at rating agency Standard & Poor's, said he believed it was "still uncertain" whether Ford would make break-even. "The poor automotive results underscore [our] concerns about the adequacy of Ford's turnaround efforts."

However Mr Gilmour said the company's 19-month old restructuring was on track. Ford's pre-tax automotive profits in the first half was $662m, well above the $33m the previous year. Its second-quarter earnings per share of 22 cents was slightly better than analysts' estimates of 19 cents a share and more than double its prediction in April. He said net pricing - vehicle list price minus discounts - should improve in the second half with the new products and fewer incentives.

But the company said it would likely make a larger third-quarter loss because of a 15 per cent cut in production and uncertainty over industry volume.

Mr Gilmour said Ford had increased fivefold a cost cutting target for its automotive business this year to $2.5bn, although the pace would slow through introducing new products and rising labour costs.

Ford Europe turned in a dismal performance for the second quarter, with pre-tax losses widening to $525m from $507m a year ago. Don Leclair, who replaces Mr Gilmour next month, said: "We know the results are unacceptable and . . . we fully expect that the third quarter will be significantly improved."

However, the Premier Automotive Group of luxury brands such as Jaguar and Volvo reported its first profit since the fourth quarter of 2001, at $166m. Ford wants PAG to contribute a third of group profits by mid-decade.