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The Spaminator
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By John Rosevear
April 25, 2014
Motley Fool


Ford's (NYSE: F ) first-quarter profits fell 39%, as higher warranty costs and rough winter weather in many parts of the U.S. weighed on earnings.

Ford reported net income of $989 million, or $0.24 a share. That's down significantly from the $1.6 billion, or $0.40 a share, that the company reported in the first quarter of last year.

It's also less than Wall Street had expected. Excluding one-time items, Ford's profit was $0.25 a share, below the $0.31 consensus analyst estimate reported by Bloomberg.

A closer look under Ford's hood

Ford was hit by a bunch of one-time expenses during the quarter, as you'll see below. But beyond those expenses, Ford had some good news to report, particularly in Europe and Asia.

The best way to understand Ford's financial reports is to take a look under Ford's hood, looking at each of the company's regional business units in turn. Note that all of the profit and loss numbers for Ford's regions are pre-tax numbers.

North America CEO Alan Mulally often says that North America is the "engine" of Ford's business, its primary profit center. But as we know, Ford's engine sputtered a bit in the harsh winter weather we saw during the quarter.

Ford North America made $1.5 billion during the first quarter, down $892 million from a record profit in the first quarter of 2013. Wholesale sales were down 2%, and revenues were down 5% -- mostly due to the tough winter conditions that hit many automakers' U.S. sales during the quarter.

Ford says the harsh weather raised its costs by about $100 million, and it took an accounting charge of about $400 million to account for a change to the reserves it holds for potential warranty and recall costs on vehicles it has sold in the past.

But Ford did lose some market share in the U.S. during the quarter, 0.6 of a percentage point. Part of that was due to a planned reduction in Ford's sales to rental-car fleets, which tend to be low-profit sales. But Ford also lost some retail market share, particularly in small cars, as models like the Focus lost ground to vehicles like Toyota's (NYSE: TM ) new Corolla.

Ford did note that the total market share held by its F-Series pickups, its best-selling and most profitable product in the U.S., was unchanged from a year ago.
 

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Launching F-150 will be the scary one, but Ford has been in this launch situation before, remember Escape and Fusion launched the same year and had some significant hiccups. Both of those vehicle constitute significant volume and were all-new and built on a very different supply chain.

F-150 has the benefit of two plants however to minimize risk.
 

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I think that sales will compensate in coming quarters. This winter was tough in NA, and sales were marginal. And updated product helps that along, in addition to cost to company.

Should be an interesting year. Lincoln sales will ramp slowly and then take off later this year with China's help.
 

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Ford reported $400 million in higher warranty costs in North America.

Does this mean dealership service centers warranty claims will be monitored to a higher degree with a higher denied rate percentage, to off-set such a big chunk of change for 1 quarter?

I have a feeling many customers who are having a not so happy new vehicle ownership experience will bare the brunt of this reported loss.
 

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It looks like Jan - March were the months where the warranty work was done for most recalled vehicles from 2013 and 2014 so far. 2nd quarter should be much better with higher spring and summer sales.
 

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VW brand's operating profit was 440 million euros ($609.9 million), down from 590 million the year before. Profit was hit by lower sales volumes, negative exchange rate trends, especially in South America and Russia, and higher upfront investments in new technologies, VW said.

Audi’s operating profit at 1.3 billion euros ($1.8 billion) was the same as in the first quarter of 2013, impacted by high upfront investments in new products and technologies, as well as in the expansion of Audi's production network outside Germany.

Porsche's profit rose to 698 million euros ($967.4 million) from 573 million. Bentley’s operating profit increased to 45 million euros ($62.4 million) from 27 million.

New models and higher vehicle sales helped Skoda to boost profit by 65 percent to 185 million euros ($256.4 million). Seat narrowed its loss to 36 million euros ($49.9 million) from 46 million.



Again, the Ford brand was more profitable than the VW brand globally. $909 Million vs $609 Million. Ford brand profits are about qual to VW+Skoda+Seat brands.

But it is the Audi brand that is the cash chow globally by sticking a big front end on VW models, VW is able to ask for almost twice the sales price and earn more than twice the profits. This is a model that could work well for Ford globally. But not in the US where strangely Americans are more critical of American brands doing the exact same as the imparts. But this is Lincoln's challenge as new models are released and entering the China market.

Ford does need a performance brand like a Porsche. I was hoping Ford would buy back Aston Martin and introduce Porsche price point vehicles to directly compete. Just looking at the US, Porsche only sold 10k units compared with 174k for the Ford brand, which should be the sales mix globally, but with Porsche profits equal to Ford brand. Ford needs a high dollar performance brand.
 

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VW brand's operating profit was 440 million euros ($609.9 million), down from 590 million the year before. Profit was hit by lower sales volumes, negative exchange rate trends, especially in South America and Russia, and higher upfront investments in new technologies, VW said.

Audi’s operating profit at 1.3 billion euros ($1.8 billion) was the same as in the first quarter of 2013, impacted by high upfront investments in new products and technologies, as well as in the expansion of Audi's production network outside Germany.

Porsche's profit rose to 698 million euros ($967.4 million) from 573 million. Bentley’s operating profit increased to 45 million euros ($62.4 million) from 27 million.

New models and higher vehicle sales helped Skoda to boost profit by 65 percent to 185 million euros ($256.4 million). Seat narrowed its loss to 36 million euros ($49.9 million) from 46 million.



Again, the Ford brand was more profitable than the VW brand globally. $909 Million vs $609 Million. Ford brand profits are about qual to VW+Skoda+Seat brands.

But it is the Audi brand that is the cash chow globally by sticking a big front end on VW models, VW is able to ask for almost twice the sales price and earn more than twice the profits. This is a model that could work well for Ford globally. But not in the US where strangely Americans are more critical of American brands doing the exact same as the imparts. But this is Lincoln's challenge as new models are released and entering the China market.

Ford does need a performance brand like a Porsche. I was hoping Ford would buy back Aston Martin and introduce Porsche price point vehicles to directly compete. Just looking at the US, Porsche only sold 10k units compared with 174k for the Ford brand, which should be the sales mix globally, but with Porsche profits equal to Ford brand. Ford needs a high dollar performance brand.

Maybe nobody tell this to Mr Mullaly. The luxury brand are capable to make 2 or 3 times more profits than the mainstream cars brand. Lincoln needs to succed and generate more profits for Ford Motor. I expect that the new CEO at Ford understand this..
 
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