Deutsche Downshifts Ford View

The analyst sees potential problems at Ford Credit.
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A Wall Street analyst reduced his earnings outlook for

Ford

(F) - Get Report

on Monday, citing potential credit problems at the automaker's finance arm as well as continued erosion in North American market share.

Deutsche Bank analyst Rod Lache slashed his estimates for the next three years for the No. 2 U.S. automaker, though he continues to recommend its stock as a buy. He now expects Ford to record a loss of 65 cents a share in 2008, worse than his previous estimate for a loss of 48 cents a share.

Lache also cut his earnings forecast for 2009 to 97 cents a share from $1.15. For 2010, he sees earnings per share of $1.13, well below his prior projection of $1.42.

Lache raised his provision for credit losses at Ford Motor Credit, the automaker's finance subsidiary, and said he expects the company's market share for its Ford, Lincoln and Mercury brands to decline to 13.5% from its current level of 14.8%.

"Ford Motor Credit is likely to experience an uptick in charge-offs in its Auto Finance business, and loss provisions will likely have to move higher from historically low levels, impacting earnings," said Lache.

The forecast comes as concern is mounting on Wall Street that housing credit problems are spreading to the auto finance business, which has been a chief source of profitability for Detroit's Big Three automakers.

Ford Credit remains one of the company's few sources of profitability, but its earnings are in decline. In the third quarter, the finance firm's earnings slid 25% from last year to $546 million, while Ford reported a total loss of $380 million for the period.

On a conference call with analysts after the company's third-quarter report, Ford CEO Alan Mulally said he expects Ford Credit to report earnings between $1.3 billion and $1.4 billion for the year on a pretax basis, while the full company does not expect to be profitable until 2009.

Unlike at

General Motors

(GM) - Get Report

, Ford's finance business was not in the subprime mortgage market, so it has avoided the financial tumult that has befallen GMAC as a result of the housing downturn.

Both companies have limited exposure to subprime loans in their auto finance portfolios, but delinquencies in GMAC's mortgage portfolio have extended beyond the subprime category, and many observers say the auto finance portfolios are

next in line for a hit.

Shares of Ford recently were up 9 cents, or 1.3%, to $7.15; shares of GM were adding 47 cents, or 1.6%, to $29.09.