Going Steady on Rocky Roads

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With weak demand from Europe, the automobile industry is facing a difficult time. The only sign of relief is the American market, where North America saved the day for one automobile giant. Ford (NYSE: F) posted its third quarter results, and also discussed ways to deal with the current economic scenario.

Getting into its major business regions

The profit for the quarter stood at $1.6 billion, with global revenue falling 3% to $33.1 billion. Production at the company was 1.4 million vehicles in the third quarter, up by 24,000 units. The rise in sales was because of the new car variants launched. The market for the new variants seems to be responding well. Hence, forecast for the fourth quarter is 1.5 million vehicles, up by 112,000 units.

North America- Profit from North America stood at $2 billion, driven by the F-series trucks sold in North America. The truck has already created a reputation, which means the company can spend less on its marketing. The gross margin in North America has been around a fabulous 10% because of the success of the new product.

Even the car sales moved up because of the launch of the Fusion mid-sized, C-max hybrid, and Escape. Car sales have been picking up well, and the company is expecting better volumes. But, marketing and advertising costs for the new models and manufacturing expenses for the new capacity are a matter of concern. It may be that the next quarter may not be equally good in terms of bottom line growth.

Europe – Ford's European loss increased from $306 million to $468 million, and revenue fell 26% to $5.8 billion. Europe’s figures are offsetting the good work done in North America. The demand is continuously falling due to the uncertain economic conditions. Ford has understood that trying to create further demand wouldn’t help, and hence the company is trying to reduce costs. It is planning to close down three plants and shift work of these plants to Valencia, Spain. The production will come down by 355,000 units. The strategy wouldn’t only save $500 million, but would also bring supply closer to demand.

Rest of the World – South America’s revenue dipped slightly by 0.7% because of the unfavorable exchange rates. Since Africa and Asia generated good revenue of $2.6 billion, up 13% the market in these continents seems to be growing. A profit of $45 million was reported, compared to a previous loss of $43 million. Hence, the company can see further increase in earnings and rise in demand.

On The Other Side

Earnings of peer General Motors (NYSE: GM) remained flat. Europe was the concern here also. Revenue from Europe dropped 18% to $5 billion, and the company had a loss of $478 million in Europe. The problem is the same here; that is, demand declining due to the economic conditions. The company isn’t planning to launch new models to increase demand. It also does not have concrete plans of cutting costs. It only signed a sponsorship deal with Manchester United to promote the brand. The company can expect an increase in brand visibility and “mind-share” through the deal. Effectiveness is only a matter of time.

Toyota’s (NYSE: TM) worldwide sales, on the other hand, increased 34% in the first half of the year. Despite the effects of Sandy, October remained a very strong month in terms of sales. The company is using new models with the old formula of higher torque and throttle. Its recently-launched FR-S sports version seems to be doing well. The company has already sold 1,521 units of it, and is expecting greater demand ahead.

The road ahead

Ford seems to be working on Europe. It is cutting costs, shifting plants, and trying to build an effective strategy to come out of turbulent times. While North America remains a success story, the company is still launching new models to capture a greater market share in the region. Investors, keen on an American automobile firm, can pick Ford over GM due to the initiatives taken by the former.

Dig Deeper

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