Ford Hits Speed Bump, While Chrysler Enters New Era
Ford shares under pressure as automaker's comeback slows, while Chrysler shakes off government ownership
While the second quarter earnings of both automakers reported Tuesday tell different stories, executives had a similar refrain concerning the economy as it relates to auto sales: Fewer than expected buyers are signing up for new cars, but those who are driving new wheels are spending more than they were a year ago.
Ford reported a 7.7% drop in profits in the second quarter on lower returns from its credit arm, higher costs for commodities and weaker results in Europe and Asia. Investors have punished Ford shares this year, which are down 22% since January.
Ford was still very profitable, reporting $2.40 billion, or 59 cents a share, compared with $2.6 billion, or 61 cents a share, a year-earlier. Excluding some items, per-share profit was 65 cents, exceeding Wall Street expectations of 60 cents, according to analysts surveyed by FactSet Research. The automaker's revenue rose 13% to $35.5 billion.
Ford Chief Financial Officer Lewis Booth said he expects U.S. auto industry sales for 2011 to be between 13 million to 13.5 million new cars and trucks, but closer to the lower part of that range. "Underlying demand is still growing, albeit slower than any of us hoped as we recover from the recession, but about on track with where we expected," said Booth.
"Demand is there, and as supply becomes available, following on from the Japanese disaster, we expect to see some pop-up in the third and fourth quarter with that supply coming onstream."
Ford is reporting that its new smaller cars, Fiesta and Focus, are selling well and that consumers are paying thousands more for them than they spent on Ford's previous Focus design as they opt for feature packages that include state-of-the-art safety and electronics. Besides soft results overseas, the company has its share of soft-sellers in North America, such as Ford Flex, Lincoln MKS and MKT.
Consumer confidence has been tracking very low the last few months, and constant chatter the last month about economic calamity if Congress and President Obama do not agree on a raise in the Federal debt ceiling has added to the angst. But vehicles wear out. The current projections for about 13 million new vehicles sold this year is just ahead of the number of vehicles being scrapped this year.
Chrysler, meantime, reported a second quarter net loss of $370 million due to the cash it spent to buy out the U.S. and Canadian governments from the stakes held dating back to the bailout of Chrysler in 2009. Without the $551 million one-time charge to repay its government loans, it earned $181 million.
Edmunds.com says Chrysler is benefiting from higher prices being paid by consumers. Chrysler's average transaction price in the first half of 2011 is 3.7 percent than in the first half of 2010, while Chrysler's average incentive spending is 14 percent lower than it was in the first half of 2010.
The bright side for Chrysler, as it prepares for an initial public offering, probably next year, is that it is free of government ownership, putting it one up on GM, and it is making money on what many view as a less than competitive lineup, especially in the passenger car segments.
Chrysler, which is 53.5% owned by Italian automaker Fiat, exported a 30 percent increase in revenue to $13.7 billion, compared to $10.5 billion in the same period a year earlier. Chrysler reported that it has more than $10 billion in cash on hand.
CEO Sergio Marchionne, who also runs Fiat, said that he is a few days away from announcing a new corporate structure that will create more efficiencies between Fiat and Chrysler, and operate the two automakers as one global organization.
As the company has relaunched the Jeep brand in Europe, Chrysler's global sales increased 19 percent over all from the year-earlier period. The company has also reduced its sales to rental fleets, which tend to be unprofitable sales and are used by automakers to pad their sales results and maximize production at assembly plants.
Marchionne said Chrysler is on track to meet his goal of selling two million Chrysler, Dodge and Jeep vehicles globally in 2011.
Marchionne said that Chrysler and Dodge passenger cars have been greatly improved to be competitive this year, "but the roof in the pudding will be when we launch the all-new C/D cars (Chrysler 200, Dodge Avenger and other cars and crossovers built off a new vehicle platform developed jointly Chrysler and Fiat) in late 2012."
This year, said Marchionne, "won't be a stupendous year, but it also won't be a lousy year."
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