By on July 28, 2016

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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.

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21 Comments on “Ford Hits a Profit Wall in North America...”


  • avatar
    APaGttH

    But, but, but, General Motors, market share down, ignition switches, trucks, SS, Cadillac sucks, grumble, grumble, grumble…

  • avatar
    SCE to AUX

    Expect to see more creative financing options, more lease programs, and more upside-down consumers. And maybe better deals as the mfrs cut each other’s throats.

    • 0 avatar
      Big Al from Oz

      SCE to AUX,
      How much better can financing a vehicle get in the US?

      I can only see two ways to maintain the market.

      1. increase the security risk of “loans”, ie, give loans to those who can’t afford the loans.

      2. A reduction in the price of a vehicle to encourage people to trade up for a new vehicle.

      • 0 avatar
        SCE to AUX

        96-month payments, and a strong expansion of leasing used cars, are a couple of things I can imagine.

        Certainly, loan risk will go up.

        Mr Musk predicts a future that includes more car sharing. Perhaps the mfrs will figure out how to cut payments in half if people go in halvsies on a vehicle.

  • avatar
    CoreyDL

    *Taps chin*

    All the sudden the praise of the MKT makes sense. Conspiracy!

  • avatar
    JimZ

    and of course F drops by a buck. Did people really expect 17 million sales a year to go on forever?

  • avatar
    Big Al from Oz

    Just concerning the US market Ford might find it harder.

    One must look at the reduction of vehicle sales due to the GFC, add this to population growth and you could almost work out how vehicles are needed to bring the US market back to where it was.

    I do believe the use of those attractive financial instruments and very low interest rates have also helped the motor vehicle industry in the US.

    Outside of the US there is very little occurring. Markets like Australia that have also had an expanding market don’t impact the global market place much.

    China is the only other country that can have an immediate impact of market size. The EU is the only other really large market.

  • avatar
    Big Al from Oz

    I read this article yesterday.

    I wonder why TTAC has not got onto this one? Is it because it goes against the TTAC position in relation to VAG/VW?

    http://www.bloomberg.com/news/articles/2016-07-28/toyota-lags-behind-vw-in-global-sales-as-prius-stumbles-in-u-s

  • avatar
    TrailerTrash

    hmmmm…

    why? what is it they are seeing?

    rates are low.
    part time work is up….
    minimum wages raised in NY, California and other states.
    government hiring is at all time highs.

    seems all good to me.

  • avatar
    zip94513

    I’ve seen no shortage of new Ford’s on the road. As a stockholder I took a big hit today, but I expect it will recover more sooner than later. The 4.33% dividend is nice. Ford’s biggest issue isn’t slowing sales, but rather the debt it accumulated avoiding bankruptcy.

  • avatar
    Lou_BC

    RAPTORIZE EVERYTHING.

  • avatar
    Jeff S

    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.

  • avatar
    EBFlex

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

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