Europe challenge to profits at Ford
Nikhil Kumar is The Independent's New York correspondent. He was formerly assistant editor on the foreign desk and has also done a variety of jobs on the city desk, where he wrote about markets, commodities and other business and economics topics.
Thursday 19 December 2013
The tough economic environment in Europe, along with pressures in South America, have put Ford's goals for its margins at risk, while a string of new product launches are likely to hit the automotive giant's profits next year.
Ford had hoped to achieve an 8-9 per cent operating margin by 2015 or 2016. But in a year-end update to investors yesterday, the auto major said Europe's economic travails and deteriorating conditions in Venezuela meant there was a question mark over the goals that were set in mid-2011.
Meanwhile, for next year, Ford said it expected to book $7bn (£4.3bn) to $8bn in pre-tax profits, lower than the around $8.5bn it said it was on track to earn for 2013.
Behind the weakness is the string of product launches planned for 2014. Internationally, Ford said it would launch 23 new models or significant overhauled versions of existing models around the world.
"This is our most ambitious launch plan ever, as we continue to implement our One Ford plan," Bob Shanks, the company's chief financial officer, said. "In 2014, we are investing across the world to support next year's launches, but also to drive profitable growth beyond 2014 as we serve more customers in more markets and in more segments."
On its home turf, in North America, it will debut 16 new models, tripling the number launched over 2013 as the business recovers from the ravages of the financial crisis.
"The pay-off for North America from the 2014 launches and investments we incur for future periods will be a stronger product line-up and volume and revenue opportunities into 2015 and beyond," Mr Shanks added.
Nonetheless, the projected weakness in profitability next year weighed on Ford's share price, which retreated by as much as around 7 per cent in early afternoon trading in New York yesterday.
Also hitting the stock were the growing concerns among investors over the company's chief executive, Alan Mulally, who came from Boeing in 2006 and helmed it through the crisis, when it had to resort to government support.
Now, speculation is growing that Mr Mulally might be tapped by Microsoft to replace its long-time chief executive, Steve Ballmer.
The Microsoft veteran announced this summer that he would step down from his position in a year, and Mr Mulally has been repeatedly named as the most likely external candidate to take the reins of the software giant from Mr Ballmer.
Microsoft board member John Thompson recently said the company expected to conclude its recruitment process by early next year.
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