DETROIT (TheStreet) -- Ford (F) continues to forecast a strong increase in U.S. auto sales in the second half of the year, but higher costs, largely related to its effort to make better cars, could diminish the benefit to the automaker.
On Tuesday, Ford reiterated its view that 2011 U.S. light vehicle sales will come in between 13 million and 13.5 million, well ahead of the July sales pace, estimated by J.D. Power to be around 11.5 million. In 2010, light vehicle sales totaled 11.6 million.
For the second half, "demand is there and as supply becomes available, following [recovery] from the Japan disaster, we expected to see [gains] in the third and fourth quarters," said CFO Lewis Booth, on Ford's earnings conference call.
|Ford CFO Lewis Booth|
Moderating fuel prices are also a positive, Booth said. But he noted that recent economic weakness leads him to believe "the bottom end of the range [is] more likely now -- we were thinking the top end was more likely." That puts Booth closer to 13.1 million than to 13.5 million.How much Ford shares can capitalize on the increased industry sales remains an open question, largely because Ford's costs are increasing. Cost increases were a big factor in second-quarter results, a strong quarter where sales increased, market share grew and Ford narrowly beat estimates, yet cost increases meant the company failed to surpass year-ago earnings. The increases reflect, in part, higher commodity prices, but also Ford is spending more to enhance its vehicles. "The underlying thesis of the recovery at Ford is to have great products in all segments," Booth said. "As I've said all along, this stuff doesn't come for free. The only way to have great products is to have some additional costs." An example, Booth said, is the improved new Focus, built on a global platform. "You will not see us back away from world class products," he said. Added CEO Alan Mulally, "We see generally an appreciation by the consumers of the content, no matter what the size of the vehicle is, whether F-150 or Fiesta or Focus." In phrasing a question, Goldman Sachs analyst Patrick Archambault told Booth that while "for the last couple of quarters, you have offset costs with pricing, this quarter it does look like the leverage you would have gotten from the volume piece was offset by increases in fixed costs. What's going to allow you to outgrow fixed costs in subsequent periods?"
Select the service that is right for you!COMPARE ALL SERVICES
Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.
- $2.5+ million portfolio
- Large-cap and dividend focus
- Intraday trade alerts from Cramer
- Weekly roundups
Access the tool that DOMINATES the Russell 2000 and the S&P 500.
- Buy, hold, or sell recommendations for over 4,300 stocks
- Unlimited research reports on your favorite stocks
- A custom stock screener
- Upgrade/downgrade alerts
Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.
- Diversified model portfolio of dividend stocks
- Alerts when market news affect the portfolio
- Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.
- Real Money + Doug Kass Plus 15 more Wall Street Pros
- Intraday commentary & news
- Ultra-actionable trading ideas
Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.
- 100+ monthly options trading ideas
- Actionable options commentary & news
- Real-time trading community
- Options TV