Slipping truck sales imperil Ford profits

DETROIT — Ford Motor Co. is shaping a turnaround plan in the United States for a simple reason: Its light-truck sales are slumping.

Sport-utilities and pickups powered Ford’s profits during the 1990s. Now, Ford faces double jeopardy: falling light-truck sales and profits.

By year end, Ford has promised a plan that will cut jobs, production capacity and costs. In the third quarter, Ford generated $18.3 billion in U.S. vehicle sales revenue — $3.6 billion less than the year-ago period.

Ford is in turmoil. Rumors swirl that CEO Jacques Nasser will be ousted. This month, the company reported its second quarter of losses, halved its dividend and saw its credit rating sink two notches. Vehicle quality problems and the Firestone tire recall have undermined Ford’s image.

But falling light-truck sales is the primary reason Ford is suffering. In September, Ford sold 176,506 fewer light trucks than a year ago, causing a 1.3 percentage-point loss in truck market share.

Moreover, Ford earns less per unit on key models. For instance, in 1998 Ford posted pretax profits of $7,000 on each Explorer. This year, the figure is down to $4,000, says analyst David Bradley at J.P. Morgan Securities Inc. in New York.

Through September, Ford’s light-truck sales fell 8.9 percent year over year, compared with 4.7 percent for the U.S. light-truck market.

“Any domestic manufacturer that has a business plan that is based on improving market share from today’s level better rethink their business plan,” said George Pipas, Ford spokesman.

To regain momentum, Ford has created four TV commercials that aired this month. Rich Stoddart, marketing communications manager for Ford Division, said, “There’s a lot of product out there. We’ve just got to make sure that we are communicating and delivering in product.”

Disappointments

Here are some of the soft spots in Ford’s light-truck sales:

Ford Explorer

Nine-month sales:

Down 14.3 percent

Four factors are undermining the Explorer: the Firestone tire recall, the success of the Ford Escape, strong new entries from General Motors, including the Chevrolet TrailBlazer, and a weakening economy.

Pipas said critics should remember that 2001 Explorer sales are measured against record 2000 volume.

This year, the Ford Explorer will outsell its nearest competitor by the same margin it did in 2000, Pipas said.

Last year, the Explorer outsold the Jeep Grand Cherokee by 173,434 units.This year, the Explorer will outsell its nearest competitor, the Chevrolet TrailBlazer, by an estimated 170,000 units, he said.

Ford Expedition

and Lincoln Navigator

Nine-month combined sales:

Down 17.6 percent

Once powerful profit generators, the Expedition and Navigator are at the end of their life cycle. The aging products are less competitive against newer entries and await a re-engineering and reskinning in the spring.

Ford delayed by about six months the product overhaul that will give both vehicles an independent rear suspension to improve the ride.

Ford also throttled back on Expedition and Navigator production this year, eliminating one of three shifts at the Wayne, Mich., assembly plant where the vehicles are built.

Ford Windstar

Nine-month sales:

Down 28.2 percent

The Windstar will be reskinned and re-engineered with all-wheel drive for the 2004 model year. But a full redesign is on hold until the 2006 model year. The redesign had been planned for the 2004 model year.

Ford’s minivan faces a raft of fresher entries including the Kia Sedona, Honda Odyssey and Toyota Sienna.

“This is an area where we have not kept pace,’’ Pipas said. “The facts speak for themselves.’’

Market leaders

In the 1990s, the Ford Expedition, Lincoln Navigator and Ford Explorer generated per-unit profits that fueled Ford’s global operations, giving the company cash to buy Land Rover Ltd. and Volvo Car Corp. and launch e-commerce ventures. But steep marketing costs, intensified competition and a slowing economy are leaching the automaker’s truck profits.

This month, Ford said it lost $849 million in North America in the third quarter.

Last year in the period, Ford’s North American earnings totaled $782 million, creating a $1.6 billion swing in net performance in the region.

“The decline was primarily a result of lower unit sales volume and significantly higher marketing costs,” Ford said.

Even before the 0 percent financing deals, Ford was offering hefty truck incentives.

The company spent an estimated $2.9 billion marketing its vehicles in the United States in the third quarter — a $500 million or 21 percent increase over the year-ago period, according to calculations based on Ford financial statements.

Ford says its trucks remain leaders. The F series set sales records in two of the last three months. The F series, Explorer and Ford Ranger remain segment leaders, Pipas said.

Ford will sell more sport-utilities this year than last, propelled by the sales success of the Ford Escape.

Through September, Ford F-series sales declined 4.6 percent year over year, mirroring the 4.7 percent decline in the U.S. light-truck market.

“Over the 12-month period of 2001, Ford Division will sell about one-half million more light trucks than its nearest competitor,” which is Chevrolet, Pipas said.

But through nine months this year, GM passed Ford in light-truck sales. GM sold 1.84 million trucks, compared with Ford’s 1.79 million in the period. Ford was ahead of GM the first nine months of 2000.

Pinched margins

Ford concedes its market share will decline year over year.

Pipas contends that older, full-line domestic manufacturers such as Ford already are competing in virtually every segment and will struggle to gain share against foreign-based manufacturers expanding into new segments.

“When you introduce a new product in the Ford lineup it is one of 16 products. It won’t have the share impact that you get if you introduce a Kia Sedona minivan into a brand that only has three or four products and that is expanding its retail outlets,” Pipas said.

Ford is earning less on its light-truck business, even as its volume dips.

For example, in 1998, the Lincoln Navigator generated an estimated pretax gross of $15,000 per unit, compared with $9,000 today, says J.P. Morgan’s David Bradley.

“No one will argue that margins in the truck business are not what they were in 1995. I don’t think it makes any difference what manufacturer you are talking about. That is what happens when competition increases,” Pipas said.

“I don’t care if you are talking about Wal-Mart, the PC industry or the truck industry.”

He added: “In 1995, there were but 28 sport-utilities in the market. Last year, there were 45. Today, there are 60. And there are more coming.”

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