DEARBORN, Mich. — Ford's ambitious plans to grow in Asia, has taken a toll on its profit in the second quarter, with higher costs to design and sell auto sales increase compensation.
The company's net profit fell to 8 percent to $ 2.4 billion for the period April-June. Ford blamed for increase in prices of steel and other raw materials, but also said that, after years of restructuring, the company is strong enough to spend heavily on future growth. Ford spent $ 400 million more on vehicles engineering and advertising than it did a year earlier.
"This is the new thing for Ford, which we are investing in the future," said Ford Chief Financial Officer Lewis Booth.
Rival Chrysler Group has also taken a hit, reporting a loss of $ 370 million in the quarter. Like Ford, Chrysler said the loss was a sign of a healthier budget. Without a charge accounting 551 million for the refinancing debt bailout for the Governments of United States and Canada, Chrysler would have earned $ 181 million.
Worldwide sales of Ford were up 7 percent. Revenue Rose 13 percent to $ 35.5 billion. But the company warned last month that could slip his profit, citing investment in future products.
Investment in Asia is the next step in the plan of President and CEO Alan Mulally to go beyond the company's near collapse in 2006, when it took out 23 billion dollars in loans to restructure. Since then, cut costs and sunk billions into improving Ford cars, resulting in nine straight quarterly profit. Now, the company aims to expand its business in Asia, where it is dwarfed by General Motors co.
Ford plans to roll out 15 cars in India and China in the next four years, and consequently, is spending hundreds of millions more in product development than it did a year ago. In Asia, Ford reported a pre-tax profit of only $ 1 million, down $ 112 million for the same period last year. The company also gained a success because some of its hottest cars are smaller and less profitable than its older models, like the Figo 8,000 dollars in India. Hopefully compensate for that by selling more cars.
An investment now could mean a boon for Ford later. GM sells more than three times auto in China that Ford does throughout Asia, and GM booked a profit of 600 million dollars for its international operations — which includes Asia — in the first quarter. Ford currently controls less than 3 percent of the market in India and China, but wants to increase its sales of 50 percent of mid-decade.
Ford also said it is spending more on production to meet demand post-recession in the United States, where people are expected to buy nearly 2 million cars more this year than it did last year. Projects annual sales of Ford in the United States that will be in the lower end of its forecast at 13-13 .5 million. The company lowered its forecast for European sales, which were weakened by the debt crisis in the latest quarter. Ford now expects sales of not more than 15.3 million vehicles, down from EUR 15.5 million.
One of the reasons why sales softened in the United States has been a lack of discounts. Ford and Chrysler were able to command higher prices for their cars and trucks last quarter, in part because of tight supplies of Japanese cars following an earthquake in that country.
Average selling price of Chrysler reached almost 5 percent from a year earlier to $29,964 while Ford rose 1 percent to $31,179, according to automotive website Edmunds.com. Both spent less on discounts and other offers.
While Chrysler was focused on paying off its Government loans, Ford paid $ 2.6 billion of its debt during the quarter. The company now has 14 billion dollars in debt, a legacy of its restructuring of 2006. Ford is hoping that his constant reduction in debt will convince rating agencies to return the company to the status of investment grade, which would make it cheaper to borrow money.
Ford does not have to wait long. Standard and poor's rating service said the companies ' financial performance is consistent with a higher rating, tracking levels "Although time is waiting to act until Ford contract talks with the United Auto Workers Union is completed. Ford and the UAW are expected to start negotiations on a new four-year contract Friday.
GM is planning to release its second quarter earnings on August 4.
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