Newspaper article International Herald Tribune

Weak Demand in Europe Weighs on Profit at Ford and Fiat

Newspaper article International Herald Tribune

Weak Demand in Europe Weighs on Profit at Ford and Fiat

Article excerpt

While Chrysler helped Fiat, Ford reported a 54 percent gain in adjusted fourth-quarter profit as strong results in North America overshadowed heavy losses in the European market.

Last year, Ford Motor broke ranks with other auto companies when it announced major cuts in its troubled European operations, including the closing of three factories, to address a sharp downturn in sales on the Continent and an oversupply of vehicles.

On Tuesday, Ford, the second-biggest U.S. automaker, after General Motors, startled the industry again by predicting that Europe, a critical market, would get worse this year before it began to improve.

Chrysler, the smallest of the American automakers, said Wednesday that its profit in 2012 soared to $1.66 billion -- about nine times as much as the $183 million it earned the previous year. It benefited from having little exposure to the deepening economic crisis in Europe.

The European problems, however, took a heavy toll on profit at Fiat, the Italian parent company of Chrysler.

Without Chrysler, Fiat said it would have lost EUR 1.04 billion in 2012. But Chrysler's results helped Fiat earn a profit for 2012 of EUR 1.41 billion, a 26 percent improvement over the EUR 1.33 billion it earned the previous year.

For the fourth quarter, Fiat reported a profit of EUR 388 million. Without Chrysler's contributions, it would have lost EUR 241 million.

Ford said European auto sales, including sales of commercial vehicles, could fall as low as 13 million this year, and that the company's annual loss in the region could reach $2 billion. Europe is the second largest market for Ford, after North America.

"The industry did 14 million last year, and that was the worst in 20 years," Robert L. Shanks, Ford's chief financial officer, said during an interview, referring to vehicle sales. "But the industry is continuing to decline, and we think 13 million is the trough."

The dire predictions for Europe on Tuesday overshadowed what were otherwise positive fourth-quarter results. Ford reported a 54 percent gain in adjusted fourth-quarter profit as strong earnings in North America compensated for heavy losses in Europe. Ford earned $1.6 billion in the fourth quarter of 2012 compared with $1.03 billion a year earlier, excluding the effects of tax-valuation allowances in 2011. Those allowances inflated net income in the fourth quarter of last year to $13.6 billion.

For the full year, Ford said it had earned $5.67 billion, a 5 percent drop from $5.97 billion in 2011, not including the tax- valuation changes, which increased the 2011 earnings to $20.2 billion.

The auto market in Western Europe remains weak, but some analysts agreed with Ford's assessment that sales were close to reaching their low point and could start to recover late this year as the crisis in the euro zone subsides.

Analysts at Goldman Sachs forecast that European auto sales would fall an additional 2.2 percent in 2013, to 12.9 million vehicles. But they will rise 3.9 percent in 2014, Goldman predicted, as car buyers start to feel more secure about their own economic prospects.

The recovery, if it comes, could be too late for many workers and even some of the manufacturers. Companies like the Opel unit of General Motors and PSA Peugeot Citroen are trying to broadly reduce jobs and production capacity.

The companies that have suffered the most are those that depend on the mass market and on southern Europe, including Fiat, Peugeot and Renault. Steady declines in sales since 2007 have left two- thirds of European auto plants operating at a loss, Goldman Sachs analysts estimated.

North American sales have been a bright spot for the world's automakers, and Ford is no exception. Ford's overall revenue in the fourth quarter was $36.5 billion, a 5 percent increase from $34.6 billion in the same period a year earlier. For all of 2012, revenue was $134.3 billion, 1 percent less than $136. …

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