Higher recall costs in North America and steeper losses in Russia and South America have caused Ford Motor Co to slash its forecast for pretax profit this year to $6 billion, from $7 billion to $8 billion previously, executives told investors at a briefing on Monday.
Chief Financial Officer Bob Shanks said record profits in North America aren't enough to offset trouble in South America, where Ford expects to lose $1 billion this year, and Russia, where falling sales and the rapid deterioration of the ruble took the company by surprise. Warranty costs — including a $500 million charge for last week's recall of 850,000 vehicles for defective air bags — are also higher than expected.
"We know this year is going to be short of plan, but we also have to keep an eye on the future," Shanks said.
Shanks said Ford expects a pretax profit of $8.5 billion to $9.5 billion in 2015, based partly upon an expected recovery in South America and improvement in warranty costs. The company also plans fewer vehicle introductions in 2015, which will cut costs. Ford is introducing 23 vehicles worldwide this year; next year, it plans to introduce 16.
Ford shares closed down 7.5 percent at $15.11 on Monday and fell further in after-hours trading to $15.
The No. 2 U.S. automaker revealed the bad news during the first investor day it has held under the leadership of Chief Executive Mark Fields, who took reins of the company from Alan Mulally on July 1. Mulally is credited with reversing a steep decline at Ford and returning it to profitability and an investment grade rating.
Fields said he is not concerned about what he sees as short-term bad news ahead of what he calls "a growth story."
Longer term, the company said it expects to grow global sales by as much as 55 percent by 2020, to 9.4 million cars and trucks. That's partly based on expected strong growth in Asia, where Ford is opening five plants over the next year.
He also said that laying out the bad news to investors at a conference center in Dearborn, Michigan near Ford headquarters was a sign of progress from the days when the company delayed action on difficult issues.
General Motors Co plans to host a similar investor day on Wednesday in Detroit.
As recently as July, Ford said it was on track to make a profit in Europe in 2015. Ford hasn't made a full-year profit in the region since 2010.
Ford CFO Shanks said the company's money-losing operations are targeted to achieve profit margins by 2020 of 7 percent to 9 percent in South America and 3 percent to 5 percent in Europe.
Repairs on recalled vehicles, mainly in North America, will cost the company about $1 billion, and losses in South America are expected to be higher than previously forecast, at nearly $1 billion, Shanks said.
Shanks also said that Ford now expects to lose about $300 million this year in Russia, more than previously expected.
Ford is forecasting a pretax operating profit margin of about 8 percent by 2020, Shanks said, adding that the company targets break-even at two-thirds of wholesale volume by 2018.
Ford said that the company will continue to make losses in South America in 2015, but not as much as this year.
Ford said it is on track for the important launch of the 2015 F-150 pickup truck. The first sales of that truck to U.S. consumers will take place late this year, said Joe Hinrichs, head of Ford's operations in North America and South America.
This report includes additional material from The Associated Press.