Ford and G.M. Expect a July Sales Drop - New York Times

Ford and G.M. Expect a July Sales Drop - New York Times

August 1, 2007
Ford and G.M. Expect a July Sales Drop
By MICHELINE MAYNARD; JEREMY W. PETERS CONTRIBUTED REPORTING FROM NEW YORK.
Over the last 18 months, General Motors and the Ford Motor Company have cut thousands of jobs and billions of dollars in costs and narrowed their North American losses. That helped each post unexpectedly strong second-quarter profits.

But those results may be the best that both auto companies can do, at least in the short run, in a challenging auto market beset by foreign competition and economic concerns.


On Wednesday, G.M. and Ford are expected to report double-digit declines in July auto sales on an unadjusted basis, according to Edmunds.com, a Web site that offers car-buying advice.

The companies have stepped up incentive programs, like rebates and cut-rate loans, in hopes of clearing out 2007 models in preparation for new models this fall.

G.M.'s most important coming vehicle is the new version of the Chevrolet Malibu sedan, which follows updated versions of its pickup trucks, the Chevrolet Silverado and GMC Sierra, introduced last winter.

The trucks' initial sales surge has faltered in the face of high gas prices, slowing home sales and concerns about the broader economy, however, leaving G.M. with soaring inventories of both vehicles at a time when competitors like Toyota are aggressively discounting their trucks.

Despite that, G.M. largely held off on its own deals until this month, and its decision paid off somewhat on Tuesday.

G.M. said it earned $891 million from April through June, or $1.56 a share, compared with a loss of $3.4 billion, or $5.98 a share, in the period a year earlier.

G.M.'s North American operations -- the centerpiece of its business -- lost $39 million in the quarter. That was a significant improvement from the second quarter of 2006, when losses totaled $3.95 billion in North America. On an adjusted basis, G.M. said it earned $78 million.

Either way, it essentially broke even in its biggest market, after almost two years of revamping.

G.M. has never said when it expects to earn an annual profit in North America. Still, G.M.'s chief financial officer, Frederick A. Henderson, said the company deserved credit for getting this far, especially since it did not anticipate high oil and gasoline prices, a slowdown in the housing market or the problems in credit markets that have occurred since it began its turnaround efforts.

''Given that we're breaking even, we've been pedaling pretty fast to get here,'' Mr. Henderson said in an interview. ''But we need to pedal even faster.''

Mr. Henderson said the second-quarter result stemmed from ''a performance that was less than we were hoping for, certainly in the month of June, for example'' when G.M.'s auto sales fell 24 percent.

On Wednesday, Edmunds estimated that G.M.'s average incentive rose to $3,130 per vehicle in July, up nearly $300 per vehicle from its level in June.

G.M. embarked on a reorganization plan in late 2005 that called for it to close all or part of a dozen plants and eliminate 30,000 jobs over three years. The plan was aimed primarily at stemming G.M.'s red ink in North America, the main reason for a near record loss of $10.6 billion in 2005 and a $2 billion loss last year.

Ford, which posted an $750 million profit during the quarter, said last week that it had lost $279 million in North America. It, too, plans to cut jobs -- about 44,000 of them in North America -- and close factories.

Even so, analysts were pleased that G.M. had positive cash flow of about $1.1 billion during the quarter, although they noted the company had reduced its capital spending plans to about $8 billion a year from a previous forecast of $8 billion to $9 billion annually.

Jonathan Steinmetz, an analyst with Morgan Stanley, termed the results ''better than expected.'' Neither Ford nor G.M. issues guidance to Wall Street, a reason both companies' second-quarter profits were above analysts' estimates.

Shares of G.M., which had risen this week on expectations of a strong quarter, fell 21 cents, closing at $32.40 on the New York Stock Exchange. They had risen as high as $34.28 early in the day.

The brightest news for G.M. came overseas. In Europe, G.M. earned $217 million. Profits reached $227 million in Asia, and $213 million in Latin America, Africa and the Middle East. The profit from worldwide automotive operations, including the loss in North America, was $618 million.

But Mr. Henderson said he was not sure that overseas performance could continue in the current quarter, when sales in Europe, in particular, traditionally decline because customers are on extended summer vacations.

''I used to wake up in terror every morning wondering whether people bought cars in the third quarter,'' said Mr. Henderson, who previously ran G.M.'s European operations. ''You have to have a good first half in order to have a reasonable chance at a reasonable year.''

He added, ''We're reasonably pleased with the second quarter, but we have a lot of challenge ahead in Europe.''