Ford Chief Operating Officer Mark Fields will have to show that the changes he made in the Americas can translate overseas.
It’s likely to be both the best of times and worst of times for Ford Motor Co. as it reports its first-quarter earnings today.
Industry analysts are uniformly anticipating the second-largest domestic automaker will report record pre-tax profits for North America – but continue to linger deep in the red in a European market that has plunged to its lowest levels in nearly two decades, with little near-term upside potential.
The troubles in Europe, as well as an anticipated loss in South America, should cut 37 cents out of the maker’s operating profit, according to a poll by the Bloomberg news service of 17 automotive analysts. Nonetheless, Ford should deliver a strong overall report, according to most, with pre-tax earnings in North America expected to come in at $2.7 billion, according to both JPMorgan Chase and Morgan Stanley.
That would work out to a profit margin that could top 12% for the region during the January to March quarter, the two firms predicted, up from 10.4% a year earlier.
With the U.S. automotive market in a strong recovery mode – outpacing the overall economy – Ford has been able to deliver on the steps it took during the recession to lean out its manufacturing base and win critical concessions from its U.S. workforce. It also helps to have seen a 12% jump in sales for its largest and most profitable truck products, such as the F-Series pickups.
“Domestically, Ford had the best Q1 2013 performance of all Detroit-based automotive manufacturers,” said Jesse Toprak, Senior Analyst for TrueCar.
Overall unit sales were up 11%, year-over-year, according to TrueCar data, boosting Ford’s U.S. market share from 15.5% to 16.2%. Incentives, meanwhile, were flat, at an average $2,852 a vehicle for the latest quarter – even while average transaction prices rose 3.3%, to $32,784 per vehicle.
The situation is quite a bit different in Europe, however, where the maker expects to see last year’s $1.75 billion loss grow to $2 billion for all of 2013. Part of the problem is the hit Ford will take as it prepares to shut three redundant European plants, two in the U.K. and a third in Belgium, by 2014. Eventually, however, the maker anticipates the move will save it as much as $500 million annually.
If that forecast is true, it could start seeing an improvement in Europe by late 2014. Of course, the market has proven so unstable – and unpredictable – that it is anyone’s guess when demand might stop its freefall. Even the mighty German economy is teetering, competitors like Volkswagen and Daimler now fretting about the hit they could take.
Europe is “a controlled mess,” said Adam Jonas, an influential automotive analyst with Morgan Stanley.
There are other issues Ford needs to worry about going forward. The South American economy has been more problematic and adding in various new trade restrictions, especially in Brazil, will cost Ford about $300 million in the region for the first quarter.
Closer to home, there continue to be troubling signs about the U.S. economy. On the other hand, with the US Energy Information Administration and others predicting fuel prices should remain low this year, that should help maintain demand for Ford’s F-Series and other big-profit trucks and crossovers even if the housing market doesn’t maintain recent momentum.
The strong performance of the North American market will no doubt reflect well on Mark Fields, until recently Ford’s President of the Americas and now the maker’s Chief Operating Officer and the likely successor to CEO Alan Mulally.
It will also deliver a good starting point for the new boss of the Americas, Joe Hinrichs, who is considered the man most likely to step in if Fields stumbles. But it could also set up extraordinarily high expectations for Hinrichs to deliver even better results going forward.
As for Mulally, the first quarter doesn’t a year make but it clearly will be seen as a sign of his success after seven years leading Ford from near-collapse to record home market numbers. Mulally has yet to say when he’ll step down, though has also only indicated he will stay on through 2014 in a revised role that turned day-to-day management over to Fields. The 52-year-old COO will have to show that whatever worked well in North America can now be translated abroad.