Bloomberg News

Ford Sees Margins Shrinking as Buyers Shift to Small Cars

November 15, 2012

Ford Sees Margins Shrinking as Consumers Downsize to Small Cars

Ford Motor Co., the second-largest U.S. automaker, said its record profit margins are shrinking in North America as buyers downsize from trucks to small cars. Source: Ford Motor Co.

Ford Motor Co. (F:US), the second-largest U.S. automaker, said its record profit margins are shrinking in North America as buyers downsize from trucks to small cars.

“We continue to see consumers trading down to smaller vehicles,” Mark Fields, Ford’s president of the Americas, said yesterday at the Barclays Capital 2012 Global Automotive Conference in New York. “Less trucks, more small cars and those vehicles have smaller margins.”

The shift will reduce Ford’s North American margins to 8 percent to 10 percent over time, down from 12 percent in the third quarter, Fields said. Ford’s margins have risen as it rolled out new models such as the 2013 Escape SUV, which is commanding $4,200 more per vehicle than the old model, Fields said. The redesigned 2013 Fusion is selling on average for $3,700 more than the 2012 model, he said.

Ford earned $6.47 billion before taxes in North America in 2012’s first nine months, more than it made in the region for all of 2011. The region had an operating profit margin of 11.2 percent during the period in an industry where a 5 percent margin is respectable.

“We have seen a pricing environment that has been fairly reasonable,” Fields said yesterday. “But in the fourth quarter, our margins will not be as strong.”

Ford’s board last month promoted Fields, 51, to chief operating officer effective Dec. 1, putting him in line to succeed Chief Executive Officer Alan Mulally, 67. Fields, a 23- year veteran of the automaker, led a transformation of its North American operations from record losses four years ago to record profits this year. Mulally will remain president and CEO through at least 2014.

South America

Results will worsen in the near-term in South America, where Ford had pretax profits of $68 million and an operating margin of 1 percent in the 2012’s first nine months, Fields said. New government policies in the region aimed at boosting local production are creating more factory capacity than can be supported by sales, Fields said.

“Clearly, the environment in South America has gotten tougher,” Fields said yesterday. “We see excess capacity that is going to put more pressure on pricing and margins.”

The automaker doesn’t plan to add factory capacity in the region and is refreshing its product line with higher margin models, built on the same mechanical underpinnings as Ford vehicles sold globally, Fields said.

Ford will introduce its redesigned Fusion sedan in South America in the first quarter of next year, the executive said.

European Losses

In Europe, Ford has said it will lose more than $1.5 billion annually this year and next as the sovereign-debt crisis drives down car sales to the lowest level in 19 years. Ford has said it plans to close three European factories by 2014 and eliminate 6,200 jobs.

In the U.S., Ford has said it added 5,200 hourly jobs and 900 salaried positions this year. The Dearborn, Michigan-based company’s U.S. car and light truck sales rose 0.3 percent last month, less than the 6.9 percent industrywide gain, according to researcher Autodata Corp. Ford said it lost sales because of Hurricane Sandy.

Ford’s U.S. market share has fallen to 15.5 percent in the first 10 months of this year from 16.8 percent a year earlier. Ford gained U.S. market share from 2009 through 2011.

Ford fell 3 percent to $10.67 at the close yesterday in New York.

To contact the reporter on this story: Keith Naughton in Southfield, Michigan, at knaughton3@bloomberg.net

To contact the editor responsible for this story: Jamie Butters at jbutters@bloomberg.net


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