Ford predicts 2014 profit drop on busiest year for new models

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DETROIT (Bloomberg) -- Ford Motor Co., entering its busiest year for new car and truck introductions ever, said that the cost of bringing those vehicles to market will lead to a decline in its pretax profit next year.

Ford forecast that it will earn $7 billion to $8 billion next year after an estimated $8.5 billion pretax profit for 2013 in a statement. The automaker said last week that it plans to introduce 23 new vehicles globally in 2014, more than double this year’s total.

Ford’s outlook reflects a bet to continue growing as the company prepares for CEO Alan Mulally’s possible departure. Automakers face pressure to lower their prices of outgoing models when new vehicles are on the way, and costs generally rise at plants that have to be re-tooled and readied to build the updated cars and trucks.

“In 2014, we are investing across the world to support next year’s launches, but also to drive profitable growth beyond 2014 as we serve more customers in more markets and in more segments,” CFO Bob Shanks said in the statement.

Ford shares fell 6.3 percent today to close at $15.65 in New York. Through Tuesday's close the stock had advanced 29 percent this year, outpacing a 25 percent gain for the Standard & Poor’s 500 Index.

“It’s a very competitive business,” Shanks told reporters and analysts today after a presentation in New York. “You really can’t sustain any competitive advantage, ever. You’ve always got to be trying to find that next thing where, for a period of time, you can separate yourself from the others.”

Ford is betting that new models will pay off in the form of more revenue in 2015. 

Mulally’s plans

While Ford has said it continues to plan for Mulally to remain CEO through at least 2014, the 68-year-old is a candidate to lead Microsoft Corp., people familiar with the search have said. Ford promoted Mark Fields, a 24-year veteran of the company, to COO in December 2012.

“I fully expect when I come back from vacation, I’ll be working for Alan, and I’ll be working for Alan into 2014,” Shanks told reporters today.

Asked if he anticipates that Mulally will remain CEO through next year, Shanks said he can’t know the future and “I don’t have anything else to add beyond that.”

The company’s outlook for next year reflects the pressure that automakers face to lower prices on outgoing models ahead of the introduction of fresher vehicles. Costs for carmakers also generally rise when they build plants and prepare existing factories to assemble new and revamped models.

Ford has struggled recently to limit costs of new product introductions even as those vehicles have sold well. The company today said that it will pay as much as $300 million in warranty expenses this year, primarily because of recalls of its Escape small SUV with 1.6-liter engines that risked catching fire because of oil and fuel leaks.

Escape recalls

The Escape has been recalled seven times since the redesigned version debuted in the first half of 2012. U.S. sales of the model are up 13 percent this year to 271,531.

The warranty expense contributed to Ford cutting its forecast for North American profit margin for this year to as low as 9.5 percent, from a previous projection of about 10 percent.

Ford must have smooth introductions next year of new vehicles including the redesigned F-150 pickup, its top-selling and most profitable model, said Michelle Krebs, an analyst with researcher Shanks said today the company hasn’t confirmed a new F-150 is coming next year.

“There’s not a more important launch than the F-150,” Krebs said today in a telephone interview. “It means everything.”

Fields, 52, has spent much of the time since his promotion to COO last year on preparing for next year’s product introductions, Shanks said today.

Fields meeting

Fields implemented and has led a Wednesday morning meeting to review the metrics of Ford’s product introductions, which are attended by company leaders in sales, product development, quality, manufacturing, purchasing and marketing, Shanks said.

“Are they on track or not? What issues do they have? What needs to get resolved? It’s a real work-oriented, pull up your sleeves and just slog through everything” meeting, Shanks said.

Ford expects that automotive revenue will rise about 10 percent in 2013 from $126.6 billion last year, Shanks told analysts and reporters today. That’s in line with the $139.6 billion average estimate of 11 analysts, data compiled by Bloomberg shows.

The company’s forecast that automotive revenue next year will be in line with its 2013 result trailed the $146.7 million average estimate of 11 analysts, according to Bloomberg data. Ford said it anticipates higher industry sales in the U.S., Europe and China, its three biggest markets.

2014 forecasts

In addition to expecting pretax profit to drop next year, Ford forecast that its automotive operating margin and cash flow will decline from 2013.

Ford said it is broadly on track with its outlook for the middle of this decade that the company first presented during a June 2011 investor day. The automaker expects to sell 8 million vehicles a year during this time frame. Ford sold 5.3 million in 2010, the company said.

The automaker’s projection that global automotive profit margins will rise to 8 percent to 9 percent by mid-decade is the only projection that is at risk, according to a slideshow presentation.

By region, Ford expects pretax profit in 2014 to decline in North America, where it will introduce 16 new vehicles. The company projected that its pretax results in Europe will improve and be in line with 2013 in South America and the Asia Pacific region.

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