Ford Hits a Profit Wall in North America

Steph Willems
by Steph Willems

Ford Motor Company says its profits dropped 9 percent in the second quarter, and warns that leaner times are coming.

Net income, global market share, and earnings per share all fell, but the automaker’s financial news wasn’t all bad. Still, Ford plans to do some cost cutting as the red-hot new vehicle market cools off in North America.

Ford’s net income of $2 billion dropped $190 million from a year ago, and its pre-tax profit of $3 billion was down $293 million. Global market share fell three-tenths of a percent to 7.5 percent of the world’s rolling fleet. Still, its overall revenue was up 6 percent, and its pre-tax profit rose to $39.5 billion. Despite some dodgy overseas markets, European pre-tax profits tripled.

So, what’s the problem? Many automakers would love to have such income. Well, the problem is growth, and Ford doesn’t expect to see much of it anytime soon.

In North America, Ford faces a wall. The company’s pre-tax profit was 5.3 percent lower this past quarter than Q2 2015. American new vehicle sales have just about reached their peak, and Ford will have to ride out the coming sales slump. (Analysts expect total sales to fall next year, and reach bottom in 2019.)

According to Automotive News, Ford adjusted its full-year industry sales outlook from roughly 18 million vehicles to between 17.4 and 17.9 million. Speaking to the media in Dearborn, Ford chief financial officer Bob Shanks said “we don’t see growth in the near term.”

Shanks wasn’t too concerned about predictions, saying, “We’re starting to see a maturation of the economic cycle. We’re at a strong level. I think that will continue.”

To bump up revenue, Ford plans to reduce its operational costs, especially in manufacturing. Shanks didn’t go into much detail on other measures, but vehicle mix and pricing will be tweaked worldwide to boost sales.

Steph Willems
Steph Willems

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  • Jeff S Jeff S on Jul 28, 2016

    There was a lot of pent up demand for new vehicles after the sales slump starting in 2008 when many postponed buying new vehicles due to the economic crash. In the post slump sales volume went up mainly because of pent up demand and this continued growth cannot be sustained. The USA, Canada, and Europe are more mature growth markets with most of the continued growth in Asia especially China. There is a limit to how much vehicle sales volume can be sustained by increasing the term of the loan and low to no interest rates and making more attractive lower and shorter term leases. Vehicles last longer and many more are keeping their vehicles longer.

  • EBFlex EBFlex on Jul 28, 2016

    "Profits now, recalls later" was not a good business model that Big Al implemented.

  • Lou_BC Ironic, the Honda Ridgeline, a truck that every truck guy loves to hate is in 6th place.
  • 28-Cars-Later I keep forgetting I own it, but the space look on the ext cab reminds me of my 'Yota pickup of the same model year. I'm pretty sure there is some vintage of Hilux which features the same looking ext cab window (maybe '88?) its a shame these things are mostly gone and when available are $1,000,000,000 [INSERT CURRENT CURRENCY].
  • Sayahh Imagine if Ford had Toyota design and build a Mustang engine. It will last over 300k miles! (Skip turbo and make it naturally aspirated.) Maybe Yamaha will help tune it...
  • Sobhuza Trooper Isuzu's crime was to build some damn good trucks.Shame on them.
  • El scotto Listen, unless you were Lord Headly-Stempmoor or such when you got off the off the boat, boot in Canada, you got the short end of the stick. People got on the boat, these days a plane, to escape famine, becoming cannon fodder in yet another stupid war, or the government thought it was A-OK to let soldiers kill you. Juneteenth is just a way to right one of the more bad ideas in the American experiment. Instead we have commenters who were buying tater chips and diet soda at Wal-Mart and got all butt-hurt because they heard someone who wasn't speaking English. I'm going to go fix a couple of frankfurters with salsa and guacamole and wash them down with a lager or three