Ford estimates lower profits in 2014; stock gets punished

DETROIT—Ford Motor Co. is facing its biggest test since CEO Alan Mulally charted its successful course out of the Great Recession.

The company told Wall Street analysts that profits will slow next year, largely because its North American cash machine is facing intense price competition and higher costs due to new model rollouts.

The admissions sent Ford’s stock tumbling 6.3 per cent, the largest one-day decline since August 2011. The shares have now dropped 12 per cent since late October, partly due to stories about Mulally possibly leaving for Microsoft.

Ford was near collapse in 2006 when it hired Mulally. The company borrowed $23.6 billion to make it through the recession and finance a restructuring. It shed unprofitable brands, closed plants and invested in new cars and trucks that are sold worldwide. Now it’s making billions.

The analyst meeting started on a good note with Ford predicting pretax profit of $8.5 billion for 2013, among the largest in company history.

But Bob Shanks, Ford’s CEO, told the group that pretax profits next year could fall as much as $1.5 billion. This is because Ford’s ability to raise prices will slow while profits will likely flatten in Asia and South America.

Also, costs will rise from an ambitious launch of almost two dozen vehicles worldwide, he said.

U.S. auto sales have risen by more than one million vehicles annually since 2009, but many analysts have said that pace isn’t sustainable. Joe Hinrichs, who runs Ford’s North and South American operations, said he expects sales growth to slow next year.

Many analysts expect sales of 15.6 million this year, up around eight per cent from 2012. Growth is expected to slow next year to around three per cent, or just over 16 million.

The market is just about back to pre-recession levels, so lower growth rates are likely, said Edward Jones industrials analyst Christian Mayes. Yet Mayes said sales can still grow thanks to low interest rates.

Ford is the only major automaker to post a double-digit sales gain in the U.S. this year, 11.7 per cent, and its 0.4 percentage point gain in market share is matched only by the much smaller Subaru.

Before the recession, Ford’s cars sold for thousands less than Japanese competitors, but the company has erased that gap, Shanks said. Now, price increases will be harder to come by, and will have to come from new models or people loading up on equipment, he told analysts.

Several analysts chalked up Ford’s stock price decline to short-term thinking by Wall Street. “They’re looking one year out,” said Mayes. “The investment they’re making for these new products will pay off eventually.”

Ford said its North American sales likely will be lower next year as it rolls out 16 new models for the region. The company said it will have to discount older models as it transitions to new ones. It expects continued tough price competition, especially in small and midsize cars, due in part to Japanese automakers taking advantage of a weaker yen versus the dollar.

Surging profits in North America have helped Ford and General Motors offset big losses in Europe and Chrysler return to profitability. The three control the bulk of the lucrative U.S. pickup truck market.

But Shanks said Wednesday that North American profit margins could fall a bit short of Ford’s 10 per cent target this year. A large recall of Escape small SUVs with 1.6-litre engines cost the company $250 million to $350 million.

Shanks also expects South American and Asia-Pacific profits to be flat in 2014. In Europe, Ford is still on track to be profitable in 2015, Shanks said. But it expects about $400 million in restructuring costs this year and next to be a drag on profits.

The company also said it nearly cut in half the underfunded balance of its global pension plans, compared with the end of 2012.

AP Auto Writer Dee-Ann Durbin contributed to this report.