Ford’s Profit Drops on Costly Product Delays, Tire Recall

DETROIT — Ford Motor Co. said Thursday that fourth-quarter earnings fell $581 million to $1.2 billion. Costly product delays and the Firestone tire recall reduced overall earnings for 2000 by $1.5 billion for the No. 2 auto maker.

The cooling U.S. auto market also tempered quarterly earnings, which were 64 cents a share, mirroring the consensus of Wall Street analysts surveyed by First Call/Thomson Financial. That compared with $1.8 billion, or 83 cents a share, for the fourth quarter of 1999. Fourth-quarter revenue fell 3% to $42.6 billion from $43.9 billion a year earlier.

For the year, Ford earned $6.7 billion, excluding one-time charges such as the spinoff of its Visteon parts unit, on a record $170 billion of revenue, down marginally from $6.8 billion in earnings on $161 billion of revenue in 1999.

The full-year results amounted to a record $3.26 per share, Chief Financial Officer Henry Wallace said.

“The heart of the performance is clearly the strong brands we have and the very strong product lineup,” Wallace said in a conference call, noting that Ford had five of the top 10 best-selling vehicles in the U.S. last year.

But the results also reflected $1 billion in uncaptured profit in 2000 because of delayed product launches and quality glitches. In particular, five recalls and “pre-calls”--orders to fix problems before cars are sold--dogged the launch of the Ford Escape, a car-based sport-utility vehicle that analysts expect to be a big hit.

Production of the 2002 Explorer SUV was to start in December, but was delayed until this month to make sure the quality is right and wouldn’t trigger recalls of its own.

“Ford’s launches have traditionally not been plagued by things like this, so people were genuinely surprised,” said Jim Hall, senior industry analyst at AutoPacific in Detroit.

“It could be that Ford was so good for so long that this was a hiccup,” Hall said. “What I’d be worried about is, is this an indication of things to come? The fact that there were hiccups with the Focus also is reason for concern. But we need to see a couple more product launches to see if it’s a trend.”

The $1 billion in costs included several hundred million dollars to cover extending warranties on 3.8-liter engines with faulty head gaskets, Wallace said.

The billion-dollar loss over launch and quality glitches “is high, but if you contrast their performance with those delays with some others in the auto industry, they’ve done pretty well,” said Greg Salchow, automotive analyst with the investment bank Raymond James & Co. in Detroit.

“It’s one of those things that most other auto makers wouldn’t even comment on,” Salchow said. “Ford is trying to be more open and communicative than other companies in the sector. They’re trying to generate more confidence in the company and its stock.”

Ford also wrote off $500 million last year related to the recall of some 6.5 million Firestone tires that showed a tendency to lose their treads at high speed. Most of those tires were sold on Ford Explorer sport-utility vehicles.

Separately, Ford announced that Helen O. Petrauskas, vice president of environmental and safety engineering, will retire later this year after 30 years with the company.

Petrauskas was one of the few Ford executives who spoke in public about Ford’s role in the Firestone tire crisis and testified in congressional hearings last fall.

Ford’s announcement implied there was no connection between Petrauskas’ retirement and the Firestone affair, saying that she had expressed the desire to leave early last year, well before the Aug. 9 recall.

Ford’s North American automotive earnings were $740 million, well below $1.6 billion in 1999, reflecting the launch costs and the slowdown in auto sales.

“We will face softening U.S. market conditions in 2001,” Chief Executive Jac Nasser said in a statement, adding, “We are focused on improving our cost structure, bringing production in line with demand, generating positive cash flow and delivering another year of strong financial results.”

Ford has scaled back its U.S. factory production for this year’s first quarter by 17%, along with similar moves by General Motors Corp. and the Chrysler unit of DaimlerChrysler, to clear out unsold inventory piling up in dealerships.

“We’ve got the strongest product lineup we’ve ever had and look for another solid year in North America,” Nasser said. “We have already taken aggressive action to adjust our first-quarter production schedules to meet softening market demand. We’ll continue to closely monitor economic conditions and will not hesitate to take further actions if warranted.”

Analyst Salchow said he expects Ford to do well this year. “GM is going to have problems. DaimlerChrysler has lots of problems,” he said. “Ford looks like it has the right mix of products. I think they’re managing their businesses pretty well, and that it will be reflected in their stock.”

Ford shares closed up 31 cents at $27.19 Thursday on the New York Stock Exchange.