Ford boost in US, crashes in Europe
FORD FACTORY TO CLOSE: Workers light bonfires at Ford's Genk factory following the announcement that the US automaker would close down the plant in 2014.
DETROIT, Michigan - Ford posted a third-quarter profit in the US driven by higher vehicle prices and record profit margins but European operations lost R8-billion.
Worldwide, Ford earned R6.9-billion more through price increases than it did in 2011, half of it from North America, where Ford has earned more than R17-billion and posted margins of more than 10% for three quarters in a row.
The automaker's strength in the US offset the effects of a drastic industry downturn in Europe, where Ford expects to lose at least R25-billion over the next two years. The success in the US helped make up for Ford's lagging position in China and other markets.
'FLIRTING WITH PROFITABILITY'
In the third quarter of 2012, Ford posted an overall pre-tax operating profit of R19-billion, or 40c per share, beating analysts' average estimate of 30c/share, according to Reuters. In North America, Ford earned R19-billion with a 12% operating margin. Analyst Peter Nesvold said: "Twelve percent segment margins is just insane."
Operating margins in North America are unlikely to be as high in last quarter of 2012 due to higher spending in areas such as engineering and advertising, warned Ford's chief financial officer Bob Shanks.
Higher pension costs and fewer cost deductions will pressure North American results in 2012, he added. Ford must take steps to boost quality, especially after tumbling to the bottom of a key reliability survey this week.
Still, Ford expects North America will continue to "carry the load" as operations in Europe, Asia and South America find their footing and generate consistent profit, Shanks said.
In the third quarter, Ford lost R4-billion in Europe. It earned R77-million in South America and R389-million in Asia and Africa.
In an interview, Shanks said Ford would be "flirting with profitability" in Asia over the few years, indicating results could be volatile as the automaker spends heavily to improve its competitiveness in the region.
Ford's results in the US reflects the benefits of chief executive Alan Mulally's "One Ford" strategy to build more cars and trucks on five global platforms by the middle of the decade, down from the current nine platforms.
Mulally said: "We're at the relative start of that around the world, led by North America."
Its restructuring during the US. auto industry's peak helped Ford avoid the government financing needed by General Motors and the Chrysler Group LLC in 2009.
The North American turnaround plan will serve as a blueprint for Ford's restructuring of Europe.
Shanks said: "Europe isn't North America. It clearly has excess capacity - which we're addressing - but if you look in other areas, it's very lean. We actually want and need to invest in other areas in the business to grow the top line."
In October 2012, Ford announced three plant closures in Europe to cut costs by as much as R4-billion. Executives also left open the possibility of further actions if a recovery in Europe fails to materialise.
Ford is launching 15 new or refreshed models in Europe over the next five years.
In the first nine months of 2012, Ford lost around R8-billion in Europe and expects to lose at least R12-billion by the end of the year.
FIXING 'MYFORD TOUCH'
In a US reliability study released by Consumer Reports magazine, the Ford and Lincoln brands tumbled to near the bottom of 28 brands measured, in part because of complaints about its MyFord Touch navigation and entertainment system.
Mulally said Ford is disappointed with the results of the study and plans take further steps to address problems in the system, which launched in 2010.
In 2012 Ford expects US industry-wide auto sales to reach 14.7 million vehicles. It forecast European sales of about 14 million.
Morgan Stanley analyst Adam Jonas said: "We think Ford is entering a new phase where it can begin harvesting the heavy lifting of the One 'Ford' plan."