Ford Motor Co. is expected to report a modest fourth quarter profit Tuesday, closing out a turnaround year for the world’s second largest auto maker. But though the company is sticking by ambitious financial targets for 2003, Wall Street remains skeptical that Ford will be able to get itself back in gear as quickly as the company’s management predicts.
FORD IS EXPECTED to post fourth quarter profits of 7 cents a share compared to a loss of $2.81 cents a share a year ago — a loss driven largely by the cost of a massive restructuring effort designed to get profit growth back on track. After posting a $5.45 billion loss for all of 2001, and cutting its dividend for the first time in a decade, Ford a year ago unveiled a five-year plan to restore profits and boost market share. The overhaul included closing five plants in the United States and eliminating 35,000 jobs worldwide.
One sign of a return to profitability came Friday, when the company said it would pay profit-sharing checks averaging $160 to 95,000 of its hourly employees. Those payments were suspended last year.
Ford also said it would give some bonuses and merit pay increases to salaried workers in the United States and Canada this year after cutting bonuses last year as part of its turnaround plan.
Earlier this month, the company said will accelerate its five-year profit plan and predicted it will boost market share in 2003, after its share of the U.S. car market slid 1.6 percent last year to 21.5 percent. Despite continued aggressive sales incentives pushed by its rivals, Ford has said it will hold prices steady in 2003. But Wall Street analysts said Ford will be hard-pressed to meet those targets.
“We could buy into flat pricing or higher market share, but it’s hard to believe the company can achieve both,” said Deutsche Bank auto analyst Rod Lache in a research note.
Holding prices steady will be made tougher by the ongoing pressure from Ford’s main U.S. rival, General Motors, which continues to up the ante with generous sales incentives to boosts its own market share. GM said last week its fourth-quarter profits quadrupled, thanks to strong U.S. sales of its highly profitable sport-utility vehicles and pickup trucks. GM core North American car business posted a profit of $633 million up from $392 million a year ago.
That financial strength helped GM push incentives to record levels of about $3,370 per vehicle in December — about 80 percent higher than a year ago, according to industry research firm Autodata. Overall, prices for cars and trucks fell 3.2 percent in the U.S. market during the fourth quarter.
Despite those price pressures, Ford rolled out an ambitious set of financial targets along with its new car models at the Detroit Auto Show earlier this month. Ford unveiled a new F-150 pickup, the top-selling vehicle in the United States, and a version of a forthcoming Mustang.
Based in part on high hopes for those new offerings, the company forecast profits of 70 cents a share for all of 2003 and predicted that its core automotive unit will break even. But analysts remain unconvinced — they’re expecting profits of just 47 cents, on average, according to the consensus of those surveyed by Thomson Financial/First Call.
Among other assumptions behind its earnings gains, Ford is predicting it will turn a profit overseas. (Ford rolled out its first model in China over the weekend.) But analysts say the company still faces major hurdles in markets like South America, where Ford hasn’t turned a profit for a decade.
“The depressed economic and intensely competitive environment down there leaves us quite skeptical that this can be achieved,” wrote Lehman Brothers analyst Darren Kimball last week.
Aside from the profit pressures on its auto operations, Ford has said it will take a $270 million hit this year on the cost of funding its pension, due largely to a weaker stock market, which has forced to company to lower its expected returns on pension fund investments. Last year, Ford posted a $190 million gain from the pension plan.
Ford’s optimistic forecasts may be aimed beyond its shareholders. Standard & Poor’s said in October that the company could face a downgrade of its debt rate if its auto operations don’t break even this year. A downgrade in that rating, now just two notches above junk status, would make it more expensive for Ford to borrow money in the credit markets.
The Associated Press and Reuters contributed to this report.
