According to Mark Fields, the new chief executive officer of Ford Motors (NYSE:F), the company’s sales estimates for the entire year have been cut. This is due to the growing problems in emerging car markets and costs from issues with product quality and recalls in the United States.
Mr. Fields has only held the position of chief executive officer of the company for three months. Yesterday, he said to investors that the second largest auto maker in the United States predicts that its sales will report pretax profits of about $6 billion this year, which is about $1.5 billion less than its estimates in July.
The main factors for this downgrade for estimates of profits are the warranty and recall costs, the loss in the South American market, and a decline in sales in Russia. The company lost about $1 billion in costs for warranty and recalls. In the South American market, the company saw a loss that is $900 million more than its forecast for the year. In Russia, sales have declined by $300 million. The company saw that its unit volumes and pricing were better than usual, which helped buffer some of the short comings.
At the market close on Monday yesterday, the car maker’s stock price closed at $15.11 after falling 7.5 percent. This is the lowest price close that the company has experienced since March, and the stock continued to drop in after hours trading.
According to Brain Johnson, an analyst for Barclays, the biggest shock was the drop in margin forecast for Ford’s North American market. Even though the car manufacturer previously predicted high numbers for the 2015 model of the F-150 pickup trucks, Ford’s estimations for the rest of the year suggest that the operating margins for North America are between the range of 8 and 9 percent, which is lower by 11 percent from last quarter.
Ford now expects its markets in Europe to lose $1.2 billion in pretax revenue in 2014, and predicts that the loss will continue into 2015, but at a lower rate. Ford does not expect its car demand in Europe to bounce back to the sales levels before the recession anymore, even by 2020.
According to data from the National Highway Traffic Safety Administration, the company is also facing challenges regarding quality issues of its vehicles, and has recalled more than 3.9 million vehicles in the United States so far this year.
Mr. Fields took over the position of chief executive officer from former head Alan Mulally in July of this year. According to Mr. Fields, the company’s lackluster outlook for the short term will not bring down his early days in the company. He says that that company is expecting coming gains in sales, and that the company is looking at reality and handling it in a proactive way.
The forecast was not entirely negative. The auto manufacturer set new goals yesterday for the end of the decade across all of its business operations, such as nearly a 50 percent growth in global deliveries, and margins that hit the double digits for its luxury brand, Lincoln. According to Ford, it plans to deliver 9.4 million vehicles by 2020, up from estimates of 6.2 million.
The chief financial officer Bob Shanks said that the Lincoln brand is going to be run on a long term business strategy, and is not expected to produce profits until later in the decade.
The company also said that it would invest $2.5 billion in the brand and add two additional vehicles by the end of the ten years. Lincoln’s expansion is set mainly on Asia, where Ford said it may invest in additional manufacturing facilities.
Ford will start to sell Lincoln vehicles in China starting in October. The MKC, a new small crossover is already performing well in the United States. The company has already put in $5 billion in building factories in China over the course of the last few years.
In North America, the company is predicting sales to grow to 3.4 million by 500,000 vehicles by the end of the decade.
The company also said to investors that its profit margins would be lower than it had previously predicted, due to the increased costs to meet fuel economy standards across the world. The auto maker suggested that the expenses that come with incorporating hybrid systems or reducing the weight of the vehicles could not be completely covered by higher pricing, mostly due to the fact that fuel prices are still too low.
According to Raj Nair, the head of product development of Ford, the market demand for fuel economy does not match up with the regulatory demand for fuel economy. Ford also disclosed that it would product its next generation of Super Duty vehicles from aluminum, like the light duty F-150 pickup trucks that will hit the market later this year.