Four years ago, not many among us foresaw a period of steady and generous earnings from the domestic automobile manufacturing industry. Yet, that is exactly what we have seen. Living in Michigan I feel a sense of kinship with the industry, and enjoy visiting it quarterly.
Ford Motor Company (NYSE:F) is the darling of the industry and was the lone domestic automaker to survive without government help last decade. It boasts a winning line of both desirable automobiles and superb financial results the past few years. In the fourth quarter of 2012, Ford recorded its 14th consecutive quarterly profit with $1.24 billion, or $0.31 per share, some 50% over last year’s fourth quarter, and it also beat by analysts’ expectations of $0.25 per share by 24%. The 2012 results excluded one-time events that would have added another nine cents per share to the total.
For all of 2012, Ford earned $5.6 billion, or $1.41 per share, absent one-time items. Ford’s quality earnings are product driven. In the fourth quarter, the company sold 1.53 million units, up from 1.42 million units a year ago. For all of 2012, volume was essentially equal with 2011; revenue was down about one percent, accounting for the small dip in profits.
The big drag on earnings continues to be Europe, where Ford suffered a pretax loss of $732 million in the fourth quarter, and over $1.7 billion in losses in 2012. I would not be surprised to see pretax losses of up to $2 billion in Europe in 2013 if volumes continue to fall. In South America and Asia, Ford pretty much treaded water with very modest profits. Ford’s North American auto and finance businesses are carrying and will continue to carry the company in the year ahead. Ford has gotten off to a fine start to 2013 with January sales up 22% from January 2012.
There are two big issues confronting Ford in particular. It had unfunded pension obligations of nearly $19 billion at the end of 2012, and it cannot go on losing money in Europe forever, particularly as the Chinese market continues being the fastest growing, mature market in the world. Ford’s January, 2013 sales in China virtually doubled those of the year ago month. In 2013, Ford looks for modest growth in North America, improving South American economies, and strong growth in China. It sees continued recession in Europe. I would like to see the company cut back on its European assets. In 2013, with the anchor of Europe, earnings are unlikely to rise, and may even fall marginally if Ford faces any sort of setbacks elsewhere.