In the first nine months of the year, Ford’s earnings in North America were US$6.47 billion before taxes, more than it had made in the region in all of 2011. Its operating margin in that period was 11.2 percent, more than double the 5 percent that’s the norm in the industry.
Now, however, the Blue Oval says that its profit margins are shrinking and the reason is that new car buyers in North America are downsizing, turning their backs on trucks and opting for smaller passenger cars such as the Fiesta and the Focus.
Moreover, its U.S. market share has fallen to 15.5 percent in the first 10 months of this year from 16.8 percent in the same period last year. It’s worth noting that Ford gained U.S. market share from 2009 until 2011.
At the Barclays Capital 2012 Global Automotive Conference in New York on Wednesday, Mark Fields, President of Ford of Americas, said: “We continue to see consumers trading down to smaller vehicles. Less trucks, more small cars; and those vehicles have smaller margins.”
Fields estimates that this shift will reduce Ford’s NA margins to 8-10 percent in the fourth quarter, down from almost 12 percent in the third quarter.
While Ford can probably deal with a small reduction in its North American profit margins, other regions pose much more important problems.
In Europe, Ford expects to lose more than US$1.5 billion annually in 2012 and 2013 as the debt-crisis has driven the market to its lowest point in the last two decades and the company is restructuring its business.
Fields, though, added that South America is something he will have to deal with soon, as new government policies to boost local production will result in overcapacity.
“Clearly, the environment in South America has gotten tougher”, he admitted. “We see excess capacity that is going to put more pressure on pricing and margins.”
The solution is not increasing factory capacity but refreshing its line-up with higher-margin global models such as the Fusion, which will be introduced in South America in the first quarter of 2013.
By Andrew TsaousisStory References: Bloomberg News