Ford Posts Record Income Despite Domestic Slump
A big rise in fourth-quarter profit drove Ford Motor Co. to its third consecutive record earnings performance in 1988, Ford said Thursday. The results led to the most profitable year ever for Detroit’s auto makers.
But Ford’s industry record $5.3 billion for 1988 included weaker profits on its U.S. car and truck sales and slippage in its growing financial-services division. The No. 2 auto company’s vast overseas operations more than accounted for the 15% earnings increase from 1987.
Earnings in the October-December period fell a bit short of Wall Street’s early projections, but at $1.16 billion still outpaced the year-ago quarter by 24% and were Ford’s highest ever for the period, the company said.
Analysts and Ford executives blamed the U.S. auto earnings dip chiefly on the cost of auto sales incentives pushed by Ford and other car firms late last year and sharply higher costs for such raw materials as aluminum, copper and plastics.
But the quarterly and full-year results marked a continuation of Ford’s striking financial performance as the company outstripped earnings at bigger General Motors for the third straight year. Attention has shifted to how long Ford can maintain this showing. Constraints on production capacity and the likelihood of a slightly smaller U.S. market for cars and trucks this year have already prompted some analysts to lower their earnings forecasts for Ford in 1989. Ford built 17% of its cars on overtime last year.
“In a sense, their problem is their own success,” said David Healy, auto analyst at Drexel Burnham Lambert in New York. “They’ve gotten to the point where they’re selling all the cars they can build and they’ve run out of room for improvement.”
Ford, which had to close dozens of U.S. assembly and parts factories and lay off tens of thousands of workers during the slump of the early 1980s, has so far resisted pressures to launch any major capacity expansion despite its successes of recent years.
Coupled with GM’s strong 1988 profit of nearly $4.9 billion and Chrysler’s decline to $1 billion, the Ford financial report pushed Detroit’s net earnings to $11.2 billion, the highest since four years earlier when the Big Three earned $9.8 billion.
The results came amid a strong domestic market that saw Americans buy 15.8 million cars and trucks last year, the third highest on record. But Ford’s results underscored the U.S. companies’ difficulty in making money at home.
Despite a 7.2% increase in the number of cars and trucks it sold here last year, giving Ford the highest domestic market share in a decade, U.S. auto profits fell almost 10% to $2.5 billion. Overseas, earnings roughly doubled to $2.1 billion.
Ford has long led its U.S.-based competitors in overseas markets, especially Europe, which was credited with keeping the company in business in the early 1980s when domestic operations were hemorrhaging red ink.
Smaller Profit Sharing
In 1988, Ford said it managed a steep rise in earnings in Europe, the Asia-Pacific region, Mexico and Latin America.
The decline in domestic automotive profits will mean a drop from last year’s industry record profit-sharing payments to its U.S. workers. Industry sources said the payout was expected to average between $2,100 and $2,500 per worker, compared to the previous year’s $3,700 per worker.
Ford is to announce the exact figure today. David McCammon, Ford treasurer and vice president for finance, would only say Thursday that it would be somewhere between $2,100 and $3,700.
It will far exceed the profit sharing checks already announced by GM, averaging $254 per worker, and Chrysler, about $720 apiece.
Ford reported a 19% decline in earnings by its financial services division, whose main components are Ford Motor Credit and First Nationwide Financial Corp. The division earned $691 million last year, Ford said.
The company blamed the decline on lower net interest margins and higher credit losses.
Ford ended the year with $9.2 billion in cash on hand, and recently announced a 25% rise in its annual dividend to $2.40 a share. Chairman Donald E. Petersen said Thursday that the company will spend “substantially” more in the next five years than its 1984-88 capital spending of $19 billion, but did not elaborate.
