Updated from 4:46 p.m. EDT

Ford

(F) - Get Report

cut its 2005 profit guidance Friday, saying high costs and a tough market for cars and trucks will eat into earnings during the latter part of the year.

Ford expects to earn $1.25 to $1.50 a share in 2005, excluding 8 cents to 10 cents a share of charges. It had previously forecast earnings of $1.75 to $1.95 a share for the year. The company said automotive pretax profits will have to struggle to break even in 2005, although it still expects automotive operating cash flow to be positive.

Ford said earnings in its first quarter will actually top its previous guidance of 25 cents to 35 cents a share, but that "difficult business conditions in the automotive sector for the remainder of the year have affected the company's full-year outlook."

Excluding the charges, analysts surveyed by Thomson First Call expected Ford to earn 36 cents a share in the first quarter and $1.64 a share in the full year.

Ford will also fail to reach its goal of generating $7 billion in pretax profit before items in 2006.

In March, Ford said high steel and oil prices, rising healthcare costs and the weak dollar would leave full-year earnings toward the low end of its $1.75 to $1.95 a share range.

"The company's analysis of recent market trends, which include the prospect of higher and sustained gasoline prices and continued aggressive pricing actions by competitors, have led us to conclude that further challenges lie ahead," Ford said. "Accordingly, we have revised our earnings outlook for the full year."

While oil prices fell sharply this week, they remain above $50 a barrel, a level that several economists have predicted would start crimping U.S. driving habits. Ford, which makes a lot of money off trucks and SUVs, could be vulnerable.

"The industry sales are good, but high gas prices have started affecting sales of the most profitable stuff for GM and Ford, particularly since the beginning of the year," said David Healy, an auto analyst with Burnham Securities. "So, for the first time, gasoline prices are really starting to change consumer attitudes and the mix of sales."

Healy noted that the hike in the company's first quarter earnings estimate probably indicates that heavy production of some new products, like the Ford 500 and the Mercury Montego, has been a success. But the drop in its full year estimates signaled production cuts are on the way, possibly in the second quarter.

Ford's warning comes a month after

General Motors

(GM) - Get Report

roiled stock and bond market by saying it would unexpectedly lose money in the first quarter and earn about half what it thought it would in all of 2005. That admission led to across-the-board debt downgrades, leaving GM's $200 billion of bonds poised just above junk status.

As for Ford, Standard & Poor's late Friday changed is outlook on Ford's long-term debt to negative from stable. S&P rates Ford BBB-, its lowest investment-grade rating.

"Ford's sales performance in the U.S. has eroded significantly," S&P noted. "Its U.S. light-vehicle unit sales from January through March were off 5.2%, meaning its U.S. market share has continued to deteriorate -- reaching 19.1% in March -- and necessitating substantial production cuts."

After skirting a brief cash crunch in late 2003, Ford's stock rose above $16 in both January and June of 2004, before settling into a decline that took the stock to $11.03 at Friday's close.

In after-hours Instinet trading, Ford was recently down 43 cents, or 3.9%, to $10.60.