Consumer shift to small cars to drop Ford’s margins in North America

Article by Anita Panait, on November 19, 2012

Ford Motor Co.’s record profit margins in North America are dwindling as consumer downsize from trucks to small cars. Mark Fields, president of The Americas for Ford, remarked that they continue customer trading down to smaller vehicles. Speaking at the Barclays Capital 2012 Global Automotive Conference in New York, Fields noted that small cars have smaller margins compared to trucks.

Fields said that the consumer shift will shrink Ford’s North American margins from 12 percent in the third quarter of 2012, to between 8 and 10 percent over time. Fields said that Ford’s profit margin have increased as it introduced new models like the 2013 Escape sports utility vehicle, which costs $4,200 higher than the old model. He added that the redesigned 2013 Fusion is selling on an average for $3,700 more than the 2012 model.

Ford posted $6.47 billion in earnings before taxes in North America in the first nine months of 2012, more than its total in the region in full year 2011. North America had an operating profit margin of 11.2 percent in the first nine months of 2012, in an industry where a 5-percent margin is already considered respectable. Fields, however, warned that in the fourth quarter of 2012, Ford’s profit margins would not be as strong.

In October, Ford’s board of directors named Fields as Chief Operating Officer effective Dec. 1, 2012, making him as the heir apparent to Ford chief executive Alan Mulally.

Fields was responsible for transforming Ford’s North American operations from record losses four years ago to record profits in 2012. Mullaly is expected to remain as the president and CEO at Ford until at least 2014. Fields expects that the carmaker’s results in South America will worsen in the near-term in South America, where Ford posted $68 million in pretax profits and 1-percent operating margin in the first nine months of 2012.

Topics: ford, north america

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