GM, Ford financials could veer in 2nd half

Stevens: Higher transaction prices
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DETROIT -- While General Motors' second-quarter profits were hammered by the costs of its massive recall, across town Ford Motor Co. reported a robust profit bolstered by a record second quarter in North America.

But fortunes could change for the two Detroit carmakers as they head into the second half of 2014.

GM's net income plummeted 85 percent from the year-earlier period to $190 million. Contributing to the decline was $400 million the company has set aside to pay victims of its faulty ignition switch.

Despite the recalls, GM got a boost from China and healthy margins on newly introduced full-sized SUVs, which could bode well for the rest of the year. GM CFO Chuck Stevens said average transaction prices on pickups rose $5,000 compared with last year, and those on SUVs jumped $6,000 to $7,000.

Ford's net rose 6 percent to $1.31 billion, paced by a pretax quarterly North American record of $2.4 billion. It was Ford's 20th consecutive quarterly profit.

Ford is gearing up for the most momentous product changeover in its history: the conversion of its biggest selling and most profitable vehicle, the F-150 pickup, from a steel body to an aluminum body. Extra-long changeover times at Ford's two F-150 plants could hamper profits, and the company maintained its guidance of a $7 billion to $8 billion profit this year, below last year's $8.6 billion.

Ford CEO Mark Fields said last week he believes Ford is well-prepared for the big changeover. The F-150 is just one of a record 23 global product launches for Ford in 2014, including the 2015 Mustang sporty car and Edge crossover.

Adam Jonas, analyst for Morgan Stanley, remains skeptical Ford can pull off the F-150 launch so smoothly. He told clients: "The F-150 changeover to aluminum is the largest, most complicated launch in the history of the company. It's going to be a painful process. Ford management did sound a little too confident for our liking."

David Whiston of Morningstar Inc. wrote: "This is a transition year for Ford, a year of investing for much better things in 2015 and 2016."

Alex Dumortier of The Motley Fool believes the two companies' fortunes are interconnected. "I suspect that Ford's record performance in North America owes something to General Motors' massive, seemingly unending, auto recalls," he wrote in a note.

Some analysts believe GM has a strong upside despite the recalls.

"We continue to see an opportunity for GM stock to rally in the second half," wrote Brian Johnson, analyst for Barclays Capital. "As the recall clouds continue to clear out, we believe improvements in the underlying business can shine through."

GM CEO Mary Barra said GM's review of pending safety issues dating to the 1990s is "substantially complete." Last week GM recalled another 717,950 vehicles, roughly as many as it recalled in all of 2013.

During a conference call with journalists and analysts, Barra said: "I think we've demonstrated resiliency as we've gone through this" recall blitz. "We understand that we have a lot more work to do."

Mike Colias contributed to this report.

You can reach Bradford Wernle at bwernle@crain.com.


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