Ford’s Q3 results suggest the car giant remains vulnerable to the severe cost pressures affecting the rest of the industry. The company has its finance arm to thank for shoring up losses on the core automotive side, and, though a major restructuring of the car business is underway, the acid test for Ford will be whether it can trade its way out of trouble with new models.
The US auto giant posted Q3 earnings of $US266 million, a marked improvement on a $25 million loss in the same period a year earlier. However, these top level figures mask conflicting trends within the different divisions of the company. Ford’s finance arm continues to be play a vital role in boosting the bottom line – Ford Motor Credit saw net income rise to $734 million from $504 million a year previously.
At the core automotive business though, the garden is less rosy. A tough trading climate in North America and ongoing difficulties at the luxury car arm meant that losses on the automotive side actually increased slightly from 12 months ago. In a bid to reverse this worrying trend, Ford has already embarked upon a series of initiatives aimed at driving down costs in the car division – typified by the decision to cease car production at its Jaguar plant in Coventry, UK.
There can be little doubt that Ford needs to rebuild profitability in its auto manufacturing operations. While financial services have provided a cushion in recent years, future interest rate rises may mean that it cannot rely on this aspect of the business to continue buttressing other loss making areas. It therefore needs to sort out its North American, European and luxury car arms – which together account for the bulk of its non-financial operations. This is no easy task given the macro pressures on auto manufacturers worldwide.
Some of Ford’s problems are structural, notably its healthcare provision and pension costs in the US, and these will be difficult to solve. Ford’s move to quit Formula One is a sensible one though – this immediately removes the considerable cost of running an F1 team from its equations. However, overheads can only be trimmed so far, and the company needs to trade itself out of its difficulties, following the example set by GM in the US. Given overcapacity in the global auto industry, this will certainly take time – but with the right models it can be done.
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