Ford has reduced its 2005 earnings forecast and has stated that it is no longer on course to reach its 2006 profit target. The firm’s troubles mirror those of the other US automotive icon, GM, as the ‘big two’ see their traditional hegemony in the domestic market coming under threat from Asian rivals. However it will take more than a cost cutting drive to rectify the problem.
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A multitude of factors have led to the downgrading of Ford’s forecasts. Profits and sales have been under pressure from high petrol prices, aggressive discounts by competitors, healthcare expenses, rising raw material costs and a weak US dollar.
Over the last few years Ford has been suffering a similar fate to that of GM, which has slashed its full-year earnings forecast by more than half. While Ford having launched an array of new vehicles over the past year, sales of its midsize, large and luxury sport utility vehicles have dropped dramatically, models which account for much of Ford’s overall revenue.
On the whole, US manufacturers have been losing sales within their domestic market to Japanese car producers. Indeed, for the first quarter of 2005, sales of both Ford and GM cars are down around 4% and 5% respectively on last year, having come up against strong competition from Toyota and Nissan.
One major challenge for Ford is to cut costs in order to help it regain its competitiveness. The company has already revealed plans to shed around 1,000 jobs through voluntary contract buyouts by mid-summer in order to safeguard the original profit predictions and, given its recent announcement, more jobs could be at risk.
However, although vital, the company’s strategy must not consist of a strict cost cutting strategy alone. Ford must not neglect research and design as they are important factors in the overall reputation of the company, which was dented during the Ford Explorer and Firestone tyre controversy some years ago. This has not been helped by the company’s recent recall of 358,857 Focus cars in the US over defective rear doors.
Faced with such strong competition from Asian producers, Ford’s priority must be to increase sales by improving the general desirability of all its vehicles. It will take more than cutting costs and passing them onto consumers to regain market share.
SOURCE: DATAMONITOR COMMENTWIRE (c) 2005 Datamonitor. All rights reserved. Republication or redistribution, including by framing or similar means, is expressly prohibited without prior written consent. Datamonitor shall not be liable for errors or delays in the content, or for any actions taken in reliance thereon.
