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Ford Shifts Into High Gear : Company Posts Record Profit; Industry Heads for Its Best Year

October 27, 1994|DONALD W. NAUSS | TIMES STAFF WRITER

DEARBORN, Mich. — Ford Motor Co. reported the best third quarter in its history Wednesday and said the U.S. auto industry could be in for a prolonged expansion that could yield strong sales and profits for several years to come.

Ford, the nation's second-largest car builder, said it made $1.12 billion from July through September, compared to $463 million in the third quarter of 1993. The strong profit resulted from brisk U.S. vehicle sales, improvement in European operations and a strong performance by Ford's financial services arm. Quarterly sales totaled $30.6 billion, up from $24.5 billion last year.

Ford's performance surpassed that of Chrysler Corp., which earlier reported earnings of $651 million. Both Ford's and Chrysler's results stood in stark contrast to General Motors Corp., whose auto operations lost money.

Together the Big Three earned $2.3 billion in the third quarter, compared to $773 million a year ago. For the year, Detroit auto makers have already earned $9.6 billion and appear certain to surpass the industry record of $11.2 billion earned in 1988.

The auto industry's performance over the past two years has been a main driver of the nation's economy. And auto industry officials say they are just revving up their engines.

"We expect the vehicle demand in the U.S. will continue to be healthy," Ford Chairman Alex Trotman said. "There should be plenty of life left in this cycle."

With demand for vehicles high, the auto makers have been boosting profits by reducing marketing costs. For instance, the average incentive offered consumers by Ford was $725 per vehicle, down $135 from a year ago.

David McCammon, Ford's treasurer and vice president of finance, predicted industry sales will hit 15.5 million this year, up 9% from last year. Barring an unexpected sharp increase in interest rates, annual sales could peak at a record 16.5 million to 17 million vehicles before the next downturn in the economy, McCammon said.

Wall Street recently bid down auto stocks, reacting to GM's poor performance and fearing higher interest rates could curb demand. On Wednesday, the Big Three were all among the most heavily traded shares on the New York Stock Exchange. Ford shares added 37.5 cents to $29.25 and Chrysler gained 25 cents to $47.75. But GM fell 62.5 cents to $40.75.

Last week, GM, the nation's No. 1 auto maker, reported third-quarter earnings of $552 million, but that was all attributed to its non-auto operations. Its North American auto operations lost $328 million, and its European auto earnings fell as well. GM's problems were tied to two strikes, production problems and high labor costs.

"GM's problems are of its own making and not indicative of problems in the industry as a whole," said David Garrity, an analyst with Smith Barney Shearson in New York. "As long as demand holds up--and there is every indication it will--auto earnings should continue to do well."

Ford's earnings were a record in a quarter that is typically the weakest because of plant shutdowns for vacations, retooling of factories for model changes and higher costs for vehicle introductions. Ford earned $1.71 billion in the second quarter, its highest three-month profit ever.

"They beat everybody's expectations," said Nick Lobaccaro, an analyst with S.G. Warburg & Co. "They showed good progress all across the board."

In Europe, Ford reported its first quarterly profit in five years. It earned $25 million, contrasted with a loss of $217 million last year. The company's financial services group continued to perform strongly, with earnings of $523 million, compared to $391 a year ago.

Ford is undergoing a major reorganization aimed at reducing costs and integrating engineering and design operations worldwide. It is also making record capital spending on new vehicles, engines and transmissions.

In its U.S. automotive operations, Ford earned $578 million, up from $333 million a year ago. It sold nearly 1.1 million cars and trucks, an increase of 17.5% over a year ago.

Ford made a profit of $865 on each vehicle it sold in the third quarter. Chrysler earned about $1,000 per vehicle, while GM lost $296 on each.

GM, which lost nearly $18 billion in North America in the last four years, has made great strides in turning around its operations. It has closed inefficient plants, laid off workers and wrested savings from suppliers.

"They've run out the string on those things," said David Healy, analyst with S. G. Warburg & Co. "The only way to cut costs now is to bring out new models that are less complex and costly and easier to produce. But that will take time."

Comeback for Auto Makers

Bolstered by record earnings from Ford Motor in the third quarter, the nation's Big Three automakers appear headed for their best year ever in 1994. The Big Three automakers made $2.3 billion from July through September, roughly triple what they earned in the third quarter of 1993.

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