An economic meltdown in Europe, a slowdown in China, weakening currency and new trade barriers in South America. The situation is getting bad for the auto industry, and both General Motors and Ford, in particular.
The smaller of the Detroit makers now anticipates overseas losses to reach $500 million for the second quarter, a heavy anchor on earnings from the recovering North American market. GM, meanwhile, expects the red ink from its long-troubled European operations to reach around $1 billion.
Noting its “operations outside of North America are under increasing pressure,” Ford warned in an SEC filing that “Our combined results for the second quarter for Ford South America, Ford Europe, and Ford Asia Pacific Africa could be a loss of about three times as much as the $190 million pretax loss incurred by these operations in the first quarter.”
In particular, the maker said conditions in Europe have “deteriorated significantly.” Leaders of the European Union have been frantically struggling to stave off financial collapse in Greece, Spain and other troubled national economies – while holding together the so-called Euro Zone. The dire austerity measures put in place in many countries has led to a plunge in European car sales that isn’t expected to reverse itself any time soon.
That’s even more problematic for GM, whose German-based Opel subsidiary has been mired deep in the red for more than a decade. The maker has been negotiating concessions from unions – and is anticipating the closure of several underutilized plants – but a turnaround now appears likely to take several more years, at best, officials have conceded.
Both GM and Ford are also struggling with problems in other regions of the world they’d hoped would offset the European crisis. The situation in China is particularly worrisome, analysts contend. For most of the last decade the market has grown well into double-digit rates but will be lucky to even reach 10 to 12% this year, GM officials said following the recent Beijing Motor Show. And there are signs that the unexpected first-quarter dip in sales could repeat itself.
Compounding matters, even South America is showing signs of weakness, in part due to new trade barriers many countries have enacted or are considering.
Commenting on Ford’s dire forecast for overseas losses, Deutsche Bank analyst Rod Lache admitted being caught off guard, writing that, “The magnitude of this deterioration comes as a surprise.” On the other hand, he said in a report, Ford’s North American operations “remains a meaningful positive.”
Ford noted in its SEC filing that it expects “good results” from North America for the second quarter. But CEO Alan Mulally has been warning that Ford might wind up losing market share this year as a result of capacity constraints. The maker – like GM and Chrysler – sharply cut back excess capacity during the recent recession. But, with the U.S. market recovering faster than anticipated, Ford is struggling to meet demand as it looks for ways to eliminate plant bottlenecks and add new shifts.
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