Well thank goodness for li’l old Land Rover. Whenever Don Leclair, executive vice president and chief financial officer of Ford, was looking for something good about his company’s automotive division on Tuesday afternoon it was Land Rover that was brought centre stage to illustrate the point that not all is doom and gloom.
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The exact scale of Land Rover’s step into profitability was not quantified. But what was clear was that the Premier Auto Group (PAG) that contains it had swung from a loss of $US347 million in the second quarter of last year to a tiddly $17 million profit in the quarter just gone. We know for sure that Jaguar is contributing little or nothing still, while Volvo and Aston are just nosing through the point of break-even. So Land Rover it is. For the full year PAG could do as well as to produce a $1 billion profit more than last year.
Interestingly, there was a number in the cash flow statement that showed that Ford had finally bought Land Rover from BMW. The last $1 billion instalment of that purchase was made in the quarter under review. It seems a long time since that deal was agreed.
There has been a “big mix” improvement from Land Rover, Leclair disclosed – which means in translation that the cars are selling for a great deal more than they were thanks to the new models and the sports versions in particular. Land Rover is finally becoming the prestige player in the SUV and light truck sector that Ford imagined that it might. Well done them for persisting with the vision and finally seeing payback.
Elsewhere? Oh my goodness. In North America they gave $1,052 away with every Ford car sold in the three months to the end of June. It makes sense really that if you sell them for less than it costs to make them there is going to be a loss.
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By GlobalDataOf course in this particular period, GM was making all the running by selling cars to the public at the same price they used to sell to their own staff. Ford has retaliated with a plan of its own called Ford Family which by all accounts has been “a great success”. Does it create incremental volume? “No not really.” Is it profitable? “Big successful programmes usually deliver big profits.” We will have to see how it plays out when the company reports again in three months’ time.
Leclair did acknowledge that margins were still under pressure and that the cost pressure was “worsening.” The contributors for that are the still-high commodity prices – steel in particular; high production costs and product quality rectification (no owning up to which model line or lines were affected); discount rates and legacy costs still climbing.
Lurking in the bushes is another problem: because Ford beats its suppliers round the head so often, their cost problems are even more acute than Ford’s own. “The supply chain is very fragile.” The commodity price increases allied to lower demand have made it very hard for them.
In response to that horrid little cocktail, Ford reckons that it has to respond with its cost-cutting programme in North America faster and harder than it had been planning. And if it has to start helping out the parts people in the way that it has just done with its largest, Visteon – which it has placed in its own partial ownership and intensive care – there is a whole new layer of threat to worry about.
Rob Golding
