DEARBORN, Mich. - Ford Motor Co.'s (
NYSE:F,
Forum) net income jumped 44 per cent to $1.9 billion in the second quarter as global sales rose and customers paid more for new trucks and SUVs with premium features.
Ford pulled off a record quarterly profit of $2.6 billion in North America even though dealerships weren't fully stocked with its bestselling vehicle, the F-150 pickup. The results bode well for the second half of the year, when Ford's two U.S. truck plants will be in full production and dealers will have more pickups to sell.
“We are now more confident than ever that we will deliver a breakthrough year,” Ford's CEO Mark Fields said on a conference call with analysts. Fields said Ford still expects to achieve a pretax profit of $8.5 billion to $9.5 billion this year.
Ford's shares rose 1 per cent to $14.76 in midday trading.
In North America, technology-rich versions of the Ford Explorer, Ford Edge and Lincoln MKX SUVs drew buyers to showrooms even as smaller, less-profitable cars like the Focus struggled.
U.S. buyers paid an average of $37,013 for the new Edge crossover in the second quarter, or $1,683 more per vehicle than they were paying for the outgoing model last year, according to Kelley Blue Book. Among the Edge's pricey new features is a system that automatically parks the car in parallel or regular parking spaces.
Ford said F-150 buyers paid an average of $3,800 more per truck in the second quarter, loading them up with features like a 360-degree camera and adaptive cruise control.
Outside North America, new vehicles like the new S-Max wagon in Europe, the Ka small car in South America and the Mustang sports car in China commanded higher prices.
The results mirrored those at Ford's crosstown rival, General Motors (
NYSE:GM,
Forum), which last week reported a record second-quarter profit of $2.8 billion in North America on the strength of its SUV and truck sales.
Ford's profit of 47 cents per share compared with a profit of 40 cents per share a year ago. That beat Wall Street's expectations of a 37-cent profit for the April-June period, according to analysts polled by FactSet.
Ford's global sales rose 2 per cent during the quarter to nearly 1.7 million. Sales were up in North America and Europe but fell in South America, the Middle East and Asia.
Revenue fell slightly to $37.3 billion. Chief Financial Officer Bob Shanks said revenue took a $2 billion hit from the strong U.S. dollar, which hurt profits in Europe, South America and elsewhere. Ford's revenue beat analysts' expectations of $35.5 billion.
North American margins, which hit 11.1 per cent in the second quarter, are expected to end the year in the upper end of the 8.5 per cent to 9.5 per cent range, Shanks said. Ford's overall automotive operating margin was 7.2 per cent.
The company lost money in Europe, South America and the Middle East but earned a record profit of $192 million in Asia despite a sales slowdown in China.
Ford said commercial vehicle sales have slowed in China, an indicator that buyers there aren't confident about the economy. While Ford has dialed back its forecast for industry sales in China this year, it still thinks the country is on track to sell 30 million vehicles annually by 2020. That's almost double the number sold in the U.S.
Fields also said new vehicles coming to China this fall, like the Taurus sedan and the Everest SUV, will boost sales.
“We're still very bullish on China, but it's going to go through its fluctuations. That's what happens in emerging markets,” Fields said.
Meanwhile, Volkswagen (
OTO:VLKAF,
Forum) overtook Toyota (
NYSE:TM,
Forum) in global vehicle sales for January-June, the first time the German automaker has come out top in the intensely competitive tallies.
Japanese automaker Toyota Motor Corp. said Tuesday it sold 5.02 million vehicles in the first six months of this year, down 1.5 per cent from the same period the previous year, as sales struggled especially in the languishing Japanese market.
Volkswagen AG said earlier this month that it sold 5.04 million vehicles during the same period. Sales were robust in Europe and North America but fell in China, usually a strong market for the company. Its first-half sales were 0.5 per cent down from the same period in 2014.
Detroit-based General Motors Corp., the top-selling automaker for more than seven decades until being surpassed by Toyota in 2008, is expected to report its figure Thursday.
GM retook the sales crown in 2011, when Toyota's production was hurt by the quake and tsunami in northeastern Japan.
Toyota, which makes the Prius hybrid, Camry sedan and Lexus luxury models, made a big comeback in 2012, and has been the world's top-selling automaker for the past three years.
In the first half, Toyota's sales grew in U.S., Mexico and China.
Last year, Toyota sold 10.23 million vehicles, beating Volkswagen and General Motors. But it has said it's expecting to sell fewer trucks and cars this year, forecasting sales will fall 1 per cent year-on-year to 10.15 million vehicles.
Volkswagen sold 10.14 million vehicles in 2014. VW makes the Beetle and Golf cars, and also has the Porsche, Bugatti and Audi brands under its group.
GM, which makes the Cadillac and Opel cars, was third at 9.92 million vehicles in global sales last year.
The ranking could still change when numbers come in for the entire year.
None of the automakers say they are trying to be No. 1 for the sake of being No. 1, but the industry crown is coveted and significant.
Meanwhile, in Detroit, Fiat Chrysler (
NYSE:FCAU,
Forum) could be required to lay out hundreds of millions of dollars to get potentially defective Ram pickups and older Jeeps off the road under a deal with U.S. safety regulators to settle claims that the automaker mishandled nearly two dozen recalls.
The National Highway Traffic Safety Administration is requiring the company to offer to buy back certain Ram pickup trucks and Dodge and Chrysler SUVs with defective steering parts that can cause drivers to lose control. More than 579,000 vehicles were initially recalled in 2013, but the company would only be required to buy back a third of those because many of the pickups have already been repaired.
The Italian-American automaker must also allow owners of more than a million older Jeeps with vulnerable rear-mounted gas tanks to trade them in at above market value or give them US$100 as an incentive to get a repair. Fiat Chrysler also faces a record civil fine of up to US$105 million.
The settlement is the latest sign that U.S. auto safety regulators are taking a more aggressive approach toward companies that fail to disclose defects or don't properly conduct a recall.
“Merely identifying defects is not enough,” U.S. Transportation Secretary Anthony Foxx said Monday during a conference call with media. “Manufacturers that fail in their duty to fix these defects will pay a price.”
Nearly 1.3 million Rams, Chrysler Aspen and Dodge Durango SUVs and Dodge Dakota pickups from as far back as the 2003 model year were recalled for the steering problem in 2013. The U.S. government excluded around 700,000 of the oldest models from the buyback program because most have already been repaired or are no longer on the road.
But it ordered the buyback for up to 579,000 vehicles from the 2008 through 2012 model years. Of those, around 193,000 have not gotten the recall repairs and are eligible for either a repair or a buyback, according to recall reports submitted to the U.S. government by Fiat Chrysler.
In each case, Fiat Chrysler would be required to pay the original purchase price plus 10 per cent, minus a certain amount for depreciation.
LouAnn Gosselin, a spokeswoman with Fiat Chrysler Canada, said the buyback program is a response to a decision by American regulators and does not include Canadian vehicles. She said the company is working with regulators on both sides of the border to determine if the decision will have any impact in Canada.
The ultimate cost of the settlement depends on how many pickup and SUV owners join in. According to Kelly Blue Book, a 2010 Dodge Ram 1500 - one of the smaller, less-expensive trucks involved in the recalls - could fetch $20,000 in a dealer trade-in, assuming the truck has 60,000 miles on it and is in “good” condition. At that rate, FCA could spend US$956 million to buy back one-quarter of the vehicles at issue. The company is allowed to repair and resell the trucks it buys back.
The American government knows of at least one death attributed to the steering defect.
The older Jeeps have fuel tanks located behind the rear axle, with little to shield them in a rear crash. They can rupture and spill gasoline, causing a fire. At least 75 people have died in crash-related fires, although Fiat Chrysler maintains they are as safe as comparable vehicles from the same era.
Fiat Chrysler must offer US$100 to Jeep owners as an incentive to get a repair or a trade-in incentive of US$1,000 toward the purchase of another Fiat Chrysler vehicle. The repair consists of adding a trailer hitch to the Jeeps. FCA has already repaired around 441,000 of the 1.5 million Jeeps recalled.
The Jeep trade-ins could add to the tab, but they also could generate more new vehicle sales by getting customers into showrooms. Still, the total could strain the parent company, Fiat Chrysler Automobiles NV. The company posted a first-quarter net profit of US$101 million and had more than US$20 billion in cash and securities on March 31.
Fiat Chrysler said the amount it pays to repurchase vehicles will be applied as a credit to the US$20 million it agreed to spend on outreach efforts as part of its US$105 million fine.
“FCA U.S. does not expect that the net cost of providing these additional alternatives will be material to its financial position, liquidity or results of operations,” the company said Monday.
Both the Jeep and Ram measures are part of a larger settlement between the government and the automaker over allegations of misconduct in 23 recalls covering more than 11 million vehicles. Besides the civil penalty, Fiat Chrysler agreed to an independent recall monitor and strict federal oversight.
In a separate announcement on Saturday, Fiat Chrysler said it was recalling 667,406 Ram pickup trucks in the U.S. and another 153,011 of the vehicles in Canada from the 2013 to 2015 model years to deal with an issue relating to airbag deployment.
In a rare bright spot, a Georgia judge has cut the damages that Fiat Chrysler must pay the family of a child who died in a Jeep SUV fire from $150 million to $40 million.
Superior Court Judge J. Kevin Chason also denied Fiat Chrysler's motion for a new trial, dismissing arguments that jurors acted irrationally.
Chason ruled that the family of 4-year-old Remington Walden should get $30 million for his death and $10 million for pain and suffering. The ruling was accepted by the family's attorneys and clears the way for Fiat Chrysler Automobiles NV to appeal. A message was left seeking comment from the company.
Walden died after the Jeep Grand Cherokee driven by his aunt in Bainbridge, Ga., was hit from behind in March 2012 and exploded.