Can Ford Dealer Afford Ford ?

[Autopub]

Last Friday, Ford lowered its earnings and dividend forecast. Ford's performance and problems mirror GM and even some of what is going on with
Chrysler.
Does it not seem ironic, if not an area of concern and analysis, that all 3 domestic manufacturers are gradually going broke while their dealers are making more money than ever? This "economic imbalance" in the distribution of the capital generation and profitability in the new car channel should be of concern and action by dealers, unless they own an Asian franchise.

[Centerfield]

Along the same lines:

FORD DROPS PROFIT WARNING BOMBSHELL - BUT MAYBE THERE'S A SILVER LINING
April 11, 2005

Minutes after the stock market closed Friday, Ford announced its 2005 profits will be lower than it previously projected.

The company said earnings will be $1.25 to $1.50 per share. This is down 14 to 29 percent from last month’s earning guidance.

In other words, Ford is projecting annual profits of $2.3 to $2.75 billion, down 21 and 34 percent from last year’s net income of $3.5 billion. For comparison, consider that Toyota, which sells about the same number of vehicles worldwide, is on track to earn about $15 billion this year.

In addition, the company said it likely will lose money in its automotive operations this year and is abandoning its oft-stated goal of earning pre-tax profits of $7 billion by 2006.

Two things strike me about the news.

First, the reasons given for the profit shortfall lack credibility.

Don Leclair, Ford’s executive vice president and chief financial officer, said, "Historically high prices for steel and crude oil, escalating health care expenses and a weak U.S. dollar presented formidable challenges as we entered 2005.”

Hello? You mean you just realized costs are rising? The dollar isn’t what it used to be?

"Ford's claims are silly,” said Peter Morici, a business professor at the University of Maryland, quoted in Saturday’s Detroit Free Press. “Prices for automotive grade steel fell the first quarter of this year. It also knew its health-care costs in advance. Ford's profits are falling because the demand for its products is flagging."

Well said.

But in a statement, Bill Ford, chairman and CEO of Ford Motor Company, said, “Although one of our strongest ever product line-ups has been well received by consumers around the world, we are not immune to the broad economic challenges we all face in our industry.”

Puhleeze, Bill.

The Ford line-up is not one of the company’s strongest. And the “economic challenges” don’t seem to be hurting some of your competitors.

For a perspective on Ford’s problems, look at the performance of Ford division, which accounts for more than 80 percent of Ford Motor Company’s U.S. sales.

Ten years ago Ford was the dominant brand in the U.S. It outsold number-two Chevrolet by 30 percent, and throughout the mid and late ‘90s, Ford proudly advertised it sold five of the top-10 vehicles in America.

Today the once-venerable Ford division still number one – but barely. It’s number three in car sales, behind Toyota and Chevrolet. It sells two of the top 10. And its lead over Chevrolet in total vehicle sales is a slim 1.7 percent. Ford runs the risk of losing its sales lead this year, but that depends on the performance of Chevrolet (which is facing its own challenges).

Auto industry sales continue strong, with about 17 million new cars and trucks sold year after year. But auto sales have become a zero-sum game: for every manufacturer that increases sales, another manufacturer loses.

This year industry sales are even with last year, and there have been plenty of winners: Nissan up 12 percent. Hyundai up 11 percent. Toyota up 9 percent. Chrysler Group up 6 percent.

General Motors and Ford are both down 5 percent.

And one more thing: How does a weak dollar, cited by Ford’s Leclair, hurt Ford’s profits? The European automakers have been screaming that the weak dollar makes them uncompetitive. And since Ford is losing money in most of its markets around the world, a weak dollar should be a boon to Ford, since its overseas losses become smaller in dollar terms.

Perhaps the time for excuses has passed.

The second thing about Ford’s announcement: I see a silver lining to Ford’s situation

Ford’s situation is serious – I hope serious enough to scare the bejesus out of Ford’s management so that it will tackle fundamental, structural problems at the company.

With market-leading and rather profitable products such as the Taurus and Explorer, Ford success from the early 1980s to the mid 1990s hid many of its deficiencies. Management didn’t have to deal with them.

But Ford has been losing market share for 10 years, and Friday’s profit warning could become a rallying cry to make necessary – and painful – changes.

In some ways, Ford’s plight is identical to GM’s. In the April 6th Wall Street Journal, an article on GM said it was transforming itself from, “What amounted to a holding company for four, self-contained and quasi-independent regional car makers – GM North America, GM Europe, GM Latin America and GM Asia-Pacific – into a single company.”

Ford has a similar structure, producing distinct vehicles in markets around the world rather than sharing platformsas much as it can. For example, Ford’s product line in Europe is wholly distinct from its North American line-up. It produces three different Ranger compact pickups worldwide.

It’s expensive to work this way.

Imagine the savings if Ford designed and engineered half of the vehicles it does today. Imagine if Ford’s plants in Europe, Asia and Latin America produced substantially the same vehicles as its plants in North America and were able to share manufacturing knowledge and tackle common problems, instead of each regional fiefdom operating independently.

The cost savings could be enormous.

For more than a decade, Ford has been saying it will restructure in order to share expertise, components and even personnel across continents, as the European and Asian auto manufacturers do. Ford can be doing more in this regard.

Of course Ford has other problems, notably the monstrous legacy costs of its U.S. pension and health care liabilities, and they’ll have to be dealt with as well.

Things are so precarious for Ford and GM that either or both could find themselves in a scenario where federal government intervention could become the topic of the day.

In the meantime, keep your eye on Ford. Tuesday, it announced the elimination of 1,000 salaried U.S. jobs by June 30.

If Ford is serious about addressing its problems, more such announcements will follow soon, and then in a couple years we could see it introduce bold, industry-leading products – as Nissan and Chrysler Group did following their turnarounds.

- BT Justice, LACB

http://www.lacar.com/modules.php?name=News&file=article&sid=421