Ford Motor Company reported second-quarter earnings that were down nearly 57 percent and warned full-year results would be lower than 2011.
Ford’s North American operations delivered positive news: operating profit rose 5.3 percent to a near-record $2.01 billion with operating margin rose from 9.8 percent to 10.2 percent. However, worldwide automotive sector results were weighed down by Ford’s European operations. Consolidated results show revenue down 6.3 percent to $31.4 billion, pre-tax operating profits down 39.3 percent to 1.382 billion and a drop in operating margin from 7.0 percent to 4.9 percent.
Ford’s Q2 U.S. light vehicle market share fell from 17.3 percent in Q2/2011 to 15.6 percent, while its retail share fell from 14.1 percent to 13.0 percent. Rather than an actual decline in results, the share declines are primarily due to resurgent Japanese sales following the recovery from the disaster-distorted results of the second quarter of 2011.
Ford European sales dropped 17.4 percent in June and market share fell from 8.1 percent to 6.8 percent. For the first six months of 2012, Ford Europe results are down 9.9 percent and losses totaled $404 million in the quarter. Ford, and other automakers operating in the EU are facing a number of challenges due not only to the continuing economic crisis but from very strong, and well-funded, competition for sales from Volkswagen.
Higher costs, lower sales and other factors combined to hurt Ford’s results in every market except North America. In addition to the European deficit, Ford lost $66 million in its Asia-Pacific operations and $163 million in what the company calls “Other;” primarily Ford’s investments in financially troubled Mazda.
Ford’s South America operations were in the black, but only by $5 million.
Growth in the BRIC (Brazil, Russia, India and China) has been tempered in recent months with Chinese trends uncertain and growing volatility in South America.
“The Ford team delivered another solid quarter driven by the strength of Ford North America and Ford Credit,” said Alan Mulally, Ford president and chief executive officer. “We remain absolutely committed to continuing to make progress on our One Ford plan, including dealing decisively with near-term challenges, investing for future growth, and developing outstanding products with segment-leading quality, fuel efficiency, safety, smart design and value.”
The company’s outlook for full year North America 2012 profits remains unchanged. Ford expects significantly higher pre-tax operating profit and margin compared with 2011, with significant sales expected for the the new Fusion launching in the second half of this year.
Ford South America is expected to show a profit in 2012, but it will be “substantially” lower than 2011′s results due to increased competition pressures, weakening currencies, and changes in government policies.
Higher incentives and reduced margins added to Ford Europe’s problems. The company is already dealing with a very unfavorable economic environment that has chopped the available market. Ford now believes it will lose more than a billion dollars in Europe this year.
In Asia Pacific and Africa, strong market factors were pulled down by higher costs associated with new products and investments to support higher volumes and future growth, among other reasons. Ford expects things will improve in the second half of 2012 as the investments begin to produce returns and new products, like the new Focus and Ranger are introduced.
Ford is not the only U.S. automaker having trouble in Europe: After a 61 percent hit to corporate profits due to a loss of more than $250 million in the first quarter, General Motors is playing “musical managers” in hopes of finding someone who can make a go of its money-losing Opel/Vauxhall operation. So far this year, Opel sales are down 15 percent and its market share is down to 6.9 percent, just slightly ahead of Fiat.
Some of the problems are of General Motors’ own devising. It’s still trying to decide in which segments Opel should play: mass market or upscale. In addition, GM has introduced the Chevrolet brand, a move that has been largely successful, but that success has likely come at the cost of Opel sales. Chevrolet sells the Spark, Aveo (our Sonic) Cruze, Camaro, Corvette, Malibu, Captiva, Orlando and Volt in Europe. A number of the Chevy models compete directly with Opel vehicles and some are actually clones. Others are rebadged vehicles from manufacturers like Suzuki.
In addition to too many models, a traditional GM problem, the company has had an overcapacity problem in Europe for several years and has, so far, been unable to arrive at a solution. It was widely expected the General would sell Opel and focus on expanding the Chevrolet and Cadillac franchises, which are already a part of its worldwide strategy. Some analysts still believe GM will ultimately dump the brand it has owned for nearly 90 years.
More bad news for Ford and GM is likely to come from Volkswagen, Europe’s dominant automaker and one of the few to still be making money and reporting growth in European sales. VW, which still has its eyes fixed on becoming the world’s largest automaker, just reported first-half profits of nearly $8 billion on revenues of nearly $117 billion and Volkswagen had a 23.8 percent share of June European sale. VW has its own troubles, most notably Spanish subsidiary SEAT and Swedish truckmaker Scania, but its other brands are churning out profits quite nicely.
With financial troubles even affecting Germany, Europe’s strongest economy, there are currently no signs of improvement for the vehicle market. U.S. sales volumes now exceed those of the entire 27-nation European Union and it looks like American profits will be covering European losses for some time to come.