DETROIT -- Ford Motor Co. said on Tuesday it would miss its goal of keeping vehicle prices steady this year in the United States due to escalating incentives, but vowed to make up the difference with cost cuts.
The change in Ford's outlook came during an update to analysts on Ford's year-old turnaround plan, which Chairman and Chief Executive Bill Ford Jr. pledged was on track, including Ford's target of earning 70 cents a share for 2003.
"So far we've met or exceeded our commitments to you every quarter since we launched this plan," Ford, the great-grandson of founder Henry Ford, told analysts. "Obviously it's a very tough marketplace, but the things we can control we've got a good grasp on."
This year, Ford had predicted flat pricing on vehicles in the United States and a 1 percent price increase in Europe, including changes in incentives. Ford's net prices rose 0.2 percent in the first quarter, while net prices at General Motors Corp. fell 3 percent and DaimlerChrysler AG's Chrysler arm saw its prices fall 1.5 percent.
Ford executives had attributed the difference to its revenue management system, which they said allowed Ford to maximize any sales boost from rebates, zero-percent loans and other incentives while minimizing the costs. It also monitors what options customers are willing to pay extra for and adjusts production accordingly.
But Ford said it now expects prices in the United States to fall this year by an unspecified amount. In April, Ford was forced to match GM's lead with $3,000 rebates and five-year, interest-free loans on much of its lineup. This month, GM and Ford are offering six-year loans at 1.9 percent interest.
As a result, Ford's average incentive rose to $3,198 per vehicle in April, up 13 percent from March and 45 percent from April 2002, according to industry research firm Autodata.
"We may fall short of our net price outlook," Ford Chief Operating Officer Nick Scheele told analysts. "If our pricing assumptions do not hold, we're quite certain our accelerated cost actions will cover any shortfall."
Scheele and Ford CFO Allan Gilmour also said Ford would likely miss its European pricing goal due to weaker industry sales and higher-than-expected incentives. Ford lowered its estimate for industrywide sales in Europe this year to 16.5 million cars and trucks, the same as its U.S. estimate.
Gilmour said Ford's second-quarter pricing performance in the United States would be "unfavorable" because it had no new vehicles going on sale which would command higher prices, compared to the launch of new full-size sport utility vehicles in the same quarter a year ago.
Thanks to global and regional overcapacity, the U.S. auto industry has been in a state of deflation for the past several years, even as sales have run near record highs. For Detroit's Big Three, that has made cost-cutting the only sure way to profits.
Ford executives spent much of their 3-1/2 hour presentation talking about their cost cutting efforts around the globe, saying that higher pension, health-care and vehicle design costs would be offset by lower costs for vehicle parts, manufacturing, administration and warranty.
"In recent times we have been in a trap where total company cost was increasing every year," Scheele said. "This year we stem that tide and total costs will decline."