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Dismal Showing in Europe Detracts From Ford’s Profit European Cloud Over Ford
(35 minutes later)
DETROIT — Last year, Ford Motor broke ranks with other auto companies when it announced major cuts in its troubled European operations, including the closing of three factories, to address a sharp downturn in sales on the continent and an oversupply of vehicles.DETROIT — Last year, Ford Motor broke ranks with other auto companies when it announced major cuts in its troubled European operations, including the closing of three factories, to address a sharp downturn in sales on the continent and an oversupply of vehicles.
On Tuesday, Ford, the second-biggest American automaker, behind General Motors, startled the industry again by predicting that Europe, a critical market, would get worse before it begins improving later this year.On Tuesday, Ford, the second-biggest American automaker, behind General Motors, startled the industry again by predicting that Europe, a critical market, would get worse before it begins improving later this year.
Ford said European auto sales, including commercial vehicles, could fall as low as 13 million this year, and its own annual losses in the region could reach $2 billion. Europe is Ford’s second-largest market, after North America.Ford said European auto sales, including commercial vehicles, could fall as low as 13 million this year, and its own annual losses in the region could reach $2 billion. Europe is Ford’s second-largest market, after North America.
“The industry did 14 million last year, and that was the worst in 20 years,” Bob Shanks, Ford’s chief financial officer, said in an interview. “But the industry is continuing to decline, and we think 13 million is the trough.”“The industry did 14 million last year, and that was the worst in 20 years,” Bob Shanks, Ford’s chief financial officer, said in an interview. “But the industry is continuing to decline, and we think 13 million is the trough.”
The dire predictions for Europe overshadowed what were otherwise positive fourth-quarter results, which Ford reported on Tuesday.The dire predictions for Europe overshadowed what were otherwise positive fourth-quarter results, which Ford reported on Tuesday.
The company reported a 54 percent gain in adjusted fourth-quarter profit as strong earnings in North America compensated for heavy losses in Europe. Ford said it earned $1.6 billion in the fourth quarter of 2012 compared with $1.03 billion a year earlier, excluding the impact of tax-valuation allowances in 2011. Those allowances inflated last year’s fourth-quarter net income to $13.6 billion.The company reported a 54 percent gain in adjusted fourth-quarter profit as strong earnings in North America compensated for heavy losses in Europe. Ford said it earned $1.6 billion in the fourth quarter of 2012 compared with $1.03 billion a year earlier, excluding the impact of tax-valuation allowances in 2011. Those allowances inflated last year’s fourth-quarter net income to $13.6 billion.
For the full year, Ford said it earned $5.67 billion, a 5 percent drop from $5.97 billion in 2011, not including the tax-valuation changes, which increased the 2011 earnings to $20.2 billion.For the full year, Ford said it earned $5.67 billion, a 5 percent drop from $5.97 billion in 2011, not including the tax-valuation changes, which increased the 2011 earnings to $20.2 billion.
The auto market in Western Europe remains abysmal, but some analysts agree with Ford’s assessment that sales may be close to their low point and could start to recover late this year as the euro zone crisis subsides.The auto market in Western Europe remains abysmal, but some analysts agree with Ford’s assessment that sales may be close to their low point and could start to recover late this year as the euro zone crisis subsides.
Analysts at Goldman Sachs forecast that European auto sales would fall an additional 2.2 percent in 2013, to 12.9 million vehicles. But they will rise 3.9 percent in 2014, Goldman predicted, as car buyers start to feel more secure about their economic prospects.Analysts at Goldman Sachs forecast that European auto sales would fall an additional 2.2 percent in 2013, to 12.9 million vehicles. But they will rise 3.9 percent in 2014, Goldman predicted, as car buyers start to feel more secure about their economic prospects.
In the meantime, though, companies like General Motors’ Opel unit and PSA Peugeot Citröen are trying to make broad reductions in jobs and production capacity.In the meantime, though, companies like General Motors’ Opel unit and PSA Peugeot Citröen are trying to make broad reductions in jobs and production capacity.
The recovery, if it comes, could be too late for many workers and even some of the manufacturers.The recovery, if it comes, could be too late for many workers and even some of the manufacturers.
The companies that have suffered the most are those that depend on the mass market and on southern Europe, including Fiat, Peugeot and Renault. Steady declines in sales since 2007 have left two-thirds of European auto plants operating at a loss, Goldman Sachs analysts estimated.The companies that have suffered the most are those that depend on the mass market and on southern Europe, including Fiat, Peugeot and Renault. Steady declines in sales since 2007 have left two-thirds of European auto plants operating at a loss, Goldman Sachs analysts estimated.
North American sales have been a bright spot for the world’s automakers, and Ford is no exception. Ford’s overall revenue in the fourth quarter was $36.5 billion, a 5 percent increase from $34.6 billion in the same period a year earlier. For all of 2012, revenue was $134.3 billion, 1 percent less than $136.3 billion in 2011.North American sales have been a bright spot for the world’s automakers, and Ford is no exception. Ford’s overall revenue in the fourth quarter was $36.5 billion, a 5 percent increase from $34.6 billion in the same period a year earlier. For all of 2012, revenue was $134.3 billion, 1 percent less than $136.3 billion in 2011.
Healthy sales of new vehicles in North America resulted in good profit margins, particularly in the United States, where the overall industry grew 13 percent last year.Healthy sales of new vehicles in North America resulted in good profit margins, particularly in the United States, where the overall industry grew 13 percent last year.
Ford said it had $1.87 billion in pretax earnings in North America during the quarter, a 110 percent increase from $889 million in the fourth quarter of 2011. For all of 2012, Ford had pretax profit of $8.34 billion in North America, compared with $6.19 billion in 2011.Ford said it had $1.87 billion in pretax earnings in North America during the quarter, a 110 percent increase from $889 million in the fourth quarter of 2011. For all of 2012, Ford had pretax profit of $8.34 billion in North America, compared with $6.19 billion in 2011.
But the company’s European operations continued to struggle as overall demand plunged, particularly in southern Europe.Ford reported a $732 million pretax loss in Europe for the fourth quarter, compared with a $190 million loss in the same period in 2011.But the company’s European operations continued to struggle as overall demand plunged, particularly in southern Europe.Ford reported a $732 million pretax loss in Europe for the fourth quarter, compared with a $190 million loss in the same period in 2011.
For all of 2012, Ford said it had a pretax loss of $1.75 billion in the region. By comparison, the company reported a loss of $27 million in Europe for all of 2011.For all of 2012, Ford said it had a pretax loss of $1.75 billion in the region. By comparison, the company reported a loss of $27 million in Europe for all of 2011.
Investors, apparently shaken by the scale of the losses and Ford’s dismal forecast for 2013, sent the automaker’s shares down nearly 5 percent to $13.14 in Tuesday’s trading.Investors, apparently shaken by the scale of the losses and Ford’s dismal forecast for 2013, sent the automaker’s shares down nearly 5 percent to $13.14 in Tuesday’s trading.
Industry analysts said Ford’s fourth-quarter European losses were higher than they had expected. They expressed doubt about how soon demand would recover in hard-hit markets like France, Italy and Spain.Industry analysts said Ford’s fourth-quarter European losses were higher than they had expected. They expressed doubt about how soon demand would recover in hard-hit markets like France, Italy and Spain.
“Management indicated that Europe would be worse in 2013, suggested that the bottom has not necessarily been reached,” Matthew Stover, an analyst with Guggenheim Securities, said in a research note to investors.“Management indicated that Europe would be worse in 2013, suggested that the bottom has not necessarily been reached,” Matthew Stover, an analyst with Guggenheim Securities, said in a research note to investors.
Ford plans to reduce its production capacity in Europe by 18 percent and eliminate 5,700 jobs by next year. The company will close an assembly plant in Belgium and two factories in England as part of that cost-cutting.Ford plans to reduce its production capacity in Europe by 18 percent and eliminate 5,700 jobs by next year. The company will close an assembly plant in Belgium and two factories in England as part of that cost-cutting.
Mr. Shanks said Ford was confident that the European industry would begin a steady recovery by 2014 and that Ford could again be profitable there by mid-decade.Mr. Shanks said Ford was confident that the European industry would begin a steady recovery by 2014 and that Ford could again be profitable there by mid-decade.
However, he did not rule out further cost-cutting measures if demand continued to deteriorate. “If we think we need to do more, we will do more,” he said.However, he did not rule out further cost-cutting measures if demand continued to deteriorate. “If we think we need to do more, we will do more,” he said.
Other auto companies in the region are expected to post weak fourth-quarter results, starting with the Italian automaker Fiat, which is scheduled to report its 2012 earnings on Wednesday.Other auto companies in the region are expected to post weak fourth-quarter results, starting with the Italian automaker Fiat, which is scheduled to report its 2012 earnings on Wednesday.
G.M. is trying to accelerate the planned 2016 closing of an assembly plant in Bochum, Germany. But efforts to cut factory capacity have met resistance from labor unions. On Tuesday, the union representing Opel workers reiterated a demand that G.M. guarantee jobs at its German plants for another four years.G.M. is trying to accelerate the planned 2016 closing of an assembly plant in Bochum, Germany. But efforts to cut factory capacity have met resistance from labor unions. On Tuesday, the union representing Opel workers reiterated a demand that G.M. guarantee jobs at its German plants for another four years.
While Europe is Ford’s most pressing trouble spot, the company also faces challenges in South America and Asia.While Europe is Ford’s most pressing trouble spot, the company also faces challenges in South America and Asia.
Ford’s chief executive, Alan R. Mulally, said the company’s efforts to globalize its products have helped it weather the downturn in Europe while it expands in Asia and delivers new models in North America.Ford’s chief executive, Alan R. Mulally, said the company’s efforts to globalize its products have helped it weather the downturn in Europe while it expands in Asia and delivers new models in North America.
The company’s strong performance in North America translated into hefty profit-sharing checks for its American workers. Ford said it would pay an average of $8,300 to each of its 45,800 hourly workers in March.The company’s strong performance in North America translated into hefty profit-sharing checks for its American workers. Ford said it would pay an average of $8,300 to each of its 45,800 hourly workers in March.

Jack Ewing contributed reporting from Frankfurt.

Jack Ewing contributed reporting from Frankfurt.