This Day On The Street
Continue to site
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here

Ford CFO: Better Cars Don't Come Free

DETROIT ( TheStreet) -- Ford (F - Get Report) 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?"
1 of 2

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Only $9.95
14-Days Free
Dividend Stock Advisor

David Peltier identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Real Money

More than 30 investing pros with skin in the game give you actionable insight and investment ideas.

Product Features:
  • Access to Jim Cramer's daily blog
  • Intraday commentary and news
  • Real-time trading forums
Only $49.95
14-Days Free
14-Days Free
F $13.56 0.00%
AAPL $93.74 0.00%
FB $117.58 0.00%
GOOG $693.01 0.00%
TSLA $240.76 0.00%


Chart of I:DJI
DOW 17,773.64 -57.12 -0.32%
S&P 500 2,065.30 -10.51 -0.51%
NASDAQ 4,775.3580 -29.9330 -0.62%

Free Reports

Top Rated Stocks Top Rated Funds Top Rated ETFs