DETROIT - A hot North American market helped Ford Motor Co. and General Motors rack up big fourth-quarter profits, although both companies had to chop expenditures to compensate for heavy rebates.
Both automakers can expect more of the same in early 1999: strong sales coupled with steep marketing costs.
For the last three months of 1998, GM reported a record net income of $1.8 billion, up 12 percent from a year earlier. Nearly all of GM's profits were generated in North America, although GM's European income rose on the strength of the redesigned Astra's popularity.
GM profits were bolstered by fatter profit margins on its full-sized pickups, plus a cost-cutting campaign that trimmed $4 billion in expenditures last year.
For the full year, GM net income totaled $3.0 billion, down 52 percent from 1997. GM blamed the downturn on two costly UAW strikes last summer.
This year, GM expects U.S. vehicle sales to range from 15 million to 15.5 million units, including medium-duty vehicles. General Motors hopes to gain 30 percent of the U.S. market, up from 29.4 percent last year. To do so, GM plans to boost first-quarter production by 7 percent over year-ago levels.
'The market continues to be quite strong,' said Mike Losh, GM's CFO. GM's inventory of trucks is 'still considerably short of where we need to be.'
However, Losh does not expect rebates to be any lower than in the fourth quarter, when GM's incentives were estimated to be $1,161 per vehicle by Merrill Lynch & Co.
Ford's quarterly net income totaled $1.0 billion, down 34 percent. Excluding one-time charges such as employee buyouts, Ford's quarterly income totaled $1.7 billion. For the year, Ford's net income totaled $5.9 billion, down 2.5 percent.
Ford does not release per-unit incentive costs. But the company's U.S. marketing costs as a percentage of gross revenue hit 9.4 percent in the fourth quarter of 1998, compared with 7.8 percent a year earlier.
'Certainly that was a drag on our profitability last year and in the fourth quarter,' said John Devine, Ford's CFO.
Little change is expected in marketing costs in the first quarter, he said.
'It makes this business a lot more competitive. It's a lot harder to make money in this business.'
Ford said its North American production will increase 13 percent to 1.2 million units in the first quarter compared with the same period a year earlier.
Cost-cutting and improved mod-el mix helped to boost earnings, Devine said. Ford cut $2.2 billion from its cost base in 1998. Products such as the new 1999 F-series Super Duty were in strong demand throughout the year. Mazda and Jaguar were profitable.
Both companies have replenished their cash reserves. GM now holds $14 billion in cash, while Ford has amassed $24 billion.
'We're not in a real rush to say we have to go out and spend it tomorrow,' Devine said.
'It is a strategic weapon. If it builds up a little further, that is fine.'
Bloomberg News Service contributed to this report