Ford CEO: Sales Slowdown Will Dent Second Half
Flattening U.S. sales and Brexit’s impact on the European market will likely weigh on Ford’s (NYSE:F) second half of the year, CEO Mark Fields told the FOX Business Network.
In an interview on “Mornings With Maria” on Thursday, Fields said consumer demand in the U.S., as well as China, has softened in 2016. Ford is seeing lower pricing and higher incentives in both regions, while the retail side of the U.S. market declined in the second quarter.
Ford’s second-quarter earnings fell 9% to $2 billion, as North American sales were flat even though the automaker increased spending on promotional discounts. Ford booked a pretax profit of $2.7 billion in North America, down 5% year-over-year. Financial results also weakened in Asia, where Ford recorded a pretax loss ($8 million) for the first time in more than three years.
And although European operations provided a boost in the latest quarter, Ford is preparing to deal with downside risks following the U.K.’s referendum to leave the European Union. Ford took a $60 million hit in the second quarter because of a weaker British pound, and Brexit could cost the company another $200 million through the rest of the year. Ford projected an annual cost of $400 million to $500 million until the U.K. officially splits from the EU and forms a new trade pact. Europe accounts for approximately 30% of Ford’s sales.
Ford, which missed Wall Street’s forecast for quarterly earnings, still maintained its full-year outlook for pretax earnings of $10 billion to $11 billion.
Ford shares tumbled as much as 10% on Thursday, the largest decline since Jan. 28, 2011, when the stock fell 13.4%.
In the U.S., Ford is warning that industry sales are beginning to plateau in the wake of a record-setting year in 2015. Fields noted how retail demand sputtered in the second quarter, despite relatively positive numbers on consumer confidence.
“On the car side, as you see consumers gravitate towards SUVs and trucks—and we’re doing very well in those segments—that’s causing a lot of pressure in the car segment. You have a number of manufacturers…that want to protect their market share,” he said.
Fields added that used car prices are coming down, further pressuring demand for Ford’s new-vehicle sales.
“Our view for second half of the year is that the retail industry is going to be lower than last year,” he said.
Ford will cut back on production when necessary in order to match its capacity with current demand. Fields said he doesn’t expect production adjustments to impact Ford’s employee count “to any great degree.”
The third quarter will be especially challenging for Ford due to expenses related to the launch of new 2017 Super Duty pickup trucks. Ford’s rollout of aluminum-bodied, heavy-duty pickup trucks follows the December 2014 launch of the current F-150 model, the first truck with an aluminum body.