Ford Earns Money Even If Automotive Sales Decline By 30%

Ford CFO Bob Shanks claimed that the company took the necessary measures to earn money even if automotive sale decline by 30%.

Ford responding to investor fears that the American automobile market is reaching its peak. It told analysts it could still be profitable even if sales by the automotive industry declined by 30% in 1 year.

Investors traded down the shares of the American automaker by 3.6% in 2016 on March 22, 2016, due to their concern that the United States automotive expansion has reached its peak and incomes are pressurized.

The carmaker, which recorded a pre-tax profit of $10.8 billion for 2015, is seen as one who could suffer from the same situation, which it faced 7 years ago when it had to close down factories, cut a large number of jobs and mortgage it’s every asset to borrow life-saving loans.

“We were in such bad shape back then. We are a much different company now,” CFO Bob Shanks spoke to analysts while meeting them in New York.

Ford stock plunged 0.5% to $13.59 at the close of trading in New York. Now, the company could reach the breakeven level financially even if the annual US vehicle sales decline to 11 million units, 37% decrease from 2015’s record 17.5 million light trucks and cars, Shanks stated.

Due to lower costs, better balance sheet and stronger products, the Michigan-based organization is now in a position to keep earning profits with a decline by 30% in the industry-wide sales, 2% decrease in net sales revenue in the first year of the decline, he stated. If sales did not rebound in 2017, the profit of the carmaker would actually enhance, Shanks stated.

In an auto market collapse, Ford could lower down its costs by $3 billion in the first year, with a sum of $1 billion being generated from its production operations. Bob stated, “We would adjust production to fit demand and do that very, very quickly.”

To prove how the US organization is more nimble-witted now, Bob pointed out the measures taken by Ford to adjust its factory output to a cut down in demand for fuel-efficient small vehicles.

Ford laid off 700 employees at its small-car manufacturing plant in Michigan and aims to move manufacturing of vehicles outside US. It also stopped manufacturing its mid-sized Fusion sedan and now manufactures it just in Mexico, where costs of labor are lower.

The carmaker aims to keep investing in new vehicles in the upcoming downturn, maintain its investment-grade credit rating and dividend. It was facilitated by latest credit upgrades, which “gives us a little bit of extra cushion,” Bob stated.

Ford Witnessed Sales Decline In China

The sales of Ford and General Motors have decreased by 9% in China after both gained in the end of last year.

Ford and General Motors have both recorded steep decreases in sales in China in February on a yearly basis as a part of an extensive slowdown attributed to a certain extent to a drop-off around the Lunar New Year Holiday. Sales of both automakers have decreased by 9% in February, the companies stated after a series of gains on a monthly basis led by newly offered government subsidies launched in 2015 for stipulating the demand for fuel-efficient vehicles.

The automotive market of China has recovered from a slowdown in summer last year because of the incentives that are applicable to 70% of the vehicles delivered in the country. A possible red flag is raised by recent decreases in sales, which signals that the biggest car market of the world could cool permanently amidst the sluggish economic growth of the country.

During the first two months of this year, Ford and Michigan sales increased by 18% and 11%, respectively. Analysts typically looked at January and February sales together which contributed to a disruption triggered by the New Year Holiday.

The China Automobile manufacturers association will report the official new-automobile sales of February in March 2016 for each vehicle manufacturer in the country. Other manufacturers also recorded decreases in past months, including Mazda Motor Corporation and Hyundai Motor Corporation. The Chinese biggest domestic manufacturer ‘SAIC’ suffered from 7% decline in sales, adversely affected by decreases reported by joint-project partners Volkswagen AG and GM, both lead the market in the state.

The vehicle sales in China boosted to the highest level in the last year, growing by 7.3% from 2014 to a figure of 24.6 million, but the sales grew at a rate, which was slower as compared to the two digit increases posted in 2014 and 2013.

The association of China automakers estimates that the sales of passenger-vehicles in the next year will grow by 7.8% to a figure of 22.76 million. Companies have hurried to establish plants and increase production in the country, while expecting to tap increasing demand for new cars by rapid urbanization and growing middle class in what’s considered amongst the most lucrative markets of the automotive industry outside the United States.

Particularly, January proved to be a strong month for companies in China, with sales growing by 9.3% from the previous year, as purchasers snapped new cars prior to the holiday. Travelling is heavy around the New Year holiday.