Ford: Shining in North America but Lackluster Elsewhere
Thursday, Ford Motor Corp. (NYSE: F) announced that it expects to be profitable in the second quarter and for the full year. However, the company also announced that it expects growing losses in foreign markets. Ford said in a filing, "our combined results for the second quarter for Ford South America, Ford Europe, and Ford Asia Pacific Africa could be a loss of about three times as much as the $190 million pre-tax loss incurred by these operations in the first quarter."
In this filing, Ford outlined that the problems abroad are different by region. In the Asia Pacific Africa region, the company has been investing heavily and reports that even as volumes have risen, investment and growth costs are rising as well. In South America, the company highlights that increasing competition and weakening currencies accompanied by changes in government policies have affected results. In Europe, the ongoing recession combined with increasing competitiveness has forced the company to lower guidance.
Ford explained, "In all, we expect the second quarter to be profitable, although strong results from Ford North America and Ford Credit will be partially offset by the combined results from our operations outside of North America. For the full year, we continue to expect to be solidly profitable and to generate positive Automotive operating-related cash flow as a result of the continued strong performance by Ford North America and Ford Credit. We are evaluating the impacts of the pressures outside of Ford North America on our full-year guidance, and as usual we will provide a comprehensive update in our upcoming quarterly earnings announcement. Consistent with our One Ford plan, we are developing actions to address the challenges outside of North America to strengthen and improve our business."
General Motors (NYSE: GM) has also been facing headwinds abroad. The company has been trying to sell its European Opel unit but has been unsuccessful at doing so. The loss-making unit has announced that it will reduce capacity over the next five years in an attempt to return to profitability. Currencies, as highlighted by Ford, have also been a headwind to global automakers. Japanese exporters have seen the strong yen hurt margins over the past few years and are attempting to adjust to these market changes.
Weakness in the large American automakers is a negative indicator for U.S. GDP growth and is also negative for the auto parts supply chain. Tier 1 auto suppliers such as Lear Corp. (NYSE: LEA) and TRW Holdings (NYSE: TRW) may suffer from lower output in the wake of these reports.
Ford shares fell about 4 percent in early New York trading to $9.70. General Motors shares also traded lower, declining approximately 1.7 percent in early trading to $19.47.
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