Ford accelerates cost-cutting plan, will drop most US sedans
DETROIT (Reuters) – Ford Motor Co. outlined a plan last week to cut costs and boost profit margins at a faster pace than previously announced, which includes dropping traditional sedan models in North America that have become increasingly unpopular with consumers.
The No. 2 US automaker said it now plans to cut $25.5 billion in costs by 2022, up from $14b. in cuts it announced last fall.
The company is undergoing “a profound refocus” of its operations and may exit unprofitable businesses, Ford chief executive Jim Hackett told investors.
“We’ll restructure as necessary, and we’ll be decisive... We’re going to feed the healthy part of our business” and dispose of marginal operations, he said.
Ford said it expects pretax profit margins of 8% globally and 10% in North America by 2020, ahead of a previous target of 2022.
Responding to a shift in consumer demand to SUVs and pickup trucks, Ford said it planned to trim its North American car portfolio to just two models: the sporty Mustang, which debuted 50 years ago this month, and a new compact crossover called Focus Active starting in 2019.
Ford “will not invest in next generations of traditional Ford sedans for North America,” including the midsize Fusion and full-size Taurus, the company said.
The automaker has been under pressure from Wall Street investors to improve its product lineup and lift flagging profit margins. In 2017, the company’s pretax profit fell to $8.4b. from $10.3b.
In March, Ford executives unveiled ambitious plans to shift the struggling automaker’s product portfolio from passenger cars to SUVs, add more hybrid and pure electric vehicles and reduce development and manufacturing costs – aimed at boosting profits and the automaker’s share price.
Ford reported a better-than-expected first-quarter profit, with a 7% increase in revenue and a lower effective tax rate offsetting a jump in costs, especially higher commodity prices.
The company reported a first-quarter net profit of $1.74b., or 43 cents per share, up from $1.6b., or 40 cents per share, a year earlier. Analysts had on average expected earnings per share of 41 cents.
Despite the higher profit, Ford’s adjusted pretax profit margin fell to 5.2% from 6.4% in the same quarter in 2017.
The lion’s share of the automaker’s quarterly profit was driven by high-margin pickup trucks and SUVs in North America. Europe was the only other region to turn a profit for Ford.
The company’s loss in its Asia Pacific region was driven by slumping sales in China, where Ford has just begun to introduce new models.
Ford said the Lincoln brand still is losing money in China, where it launched in 2015, but it now plans to begin local production there in 2020.