Ford Motor Co., poised to begin negotiations with the UAW later this week, may report lower second-quarter profit tomorrow on rising costs for commodities and developing new vehicles. Hit the jump to read the rest of the story.
Funk Flex
Profit excluding some items may have dropped to 61 cents a share, according to the average of 14 analysts’ estimates, from 68 cents a year earlier. Ford formally begins talks this week with the UAW, which says workers should share more in Ford’s turnaround. Last year was Ford’s most profitable since 1999.
Second-quarter profit will be equal or “slightly lower” than in the first quarter, when Ford earned $2.78 billion before taxes, Controller Bob Shanks said last month at an investor conference in Chicago.
Industrywide U.S. vehicle sales slowed in the quarter because of costlier cars and shortages after the March 11 tsunami in Japan. CEO Alan Mulally is raising prices for Fiesta subcompacts and Explorer sport-utility vehicles to offset some of the $4 billion in higher costs for commodities, advertising and new-product development.
“For Ford, the question is can you sustain the price discipline as the Japanese manufacturers come back?” Itay Michaeli, a New York-based analyst at Citigroup Inc., said in a phone interview. Michaeli rates Ford “buy” and predicts second-quarter profit of 60 cents a share.
U.S. auto sales slowed to a seasonally adjusted annual rate of 12.1 million in the second quarter from a 13.1 million pace in the prior three months, according to Autodata Corp., as Toyota Motor Corp. and Honda Motor Co. deliveries tumbled.
Labor negotiations
Ford has said it wants to further lower labor costs, which it estimates are $8 an hour higher than the mostly non-union factories of foreign automakers and Chrysler Group LLC, which began its labor negotiations with the UAW today.
UAW President Bob King said in a July 22 interview that the union will not be granting concessions.
“No way,” King said. “It would be the wrong thing to do to talk about concessions, they’re not needed today. The way that Ford can make up that cost gap really quickly is to grow market share and open up more facilities.”
Hourly workers at Chrysler and General Motors Co., as part of U.S-backed bankruptcies in 2009, agreed not to strike over wages and benefits during this year’s contract talks. Ford didn’t seek a U.S. bailout and UAW members at the automaker rejected the strike ban and arbitration.
King has said workers must be rewarded for the $7,000 to $30,000 in concessions they gave since 2005 to help U.S. automakers survive.
Higher costs
The cost of developing new models and improving the Ford and Lincoln brand images will add $2 billion to Ford’s structural costs this year, Shanks said. Ford’s commodity costs may rise by another $2 billion.
Earnings from the Ford Credit finance unit this year will be $1.1 billion less because of changes in lease depreciation and credit-loss reserves, Ford said April 26.
Ford forecast a smaller year-over-year production increase in the second quarter than the 14 percent gain through March. North American output in the second quarter may rise 8.7 percent to 710,000 units, and production may fall in all other regions from the year-earlier period, Ford said.
Earnings in Europe may “deteriorate” from the first quarter on a 10 percent sequential drop in production and “competitive” promotional activity in the region, Joseph Amaturo, a New York-based analyst at Buckingham Research Group, said in a July 13 research note. Ford reported an operating profit of $293 million in Europe for the first quarter.
