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November 02, 2020 11:51 AM

Ford, FCA hopeful as demand, pricing spark hefty Q3 earnings

Micahel Martinez and Vince Bond Jr.
Automotive News
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    DETROIT—If you listen closely, you can almost hear the collective sound of Detroit auto executives knocking on wood after third-quarter earnings reports from Ford Motor Co. and Fiat Chrysler Automobiles shattered expectations.

    General Motors is expected to announce similarly strong numbers, further evidence the Detroit 3 have not only overcome a pandemic that shuttered factories and sank sales but have managed to emerge stronger. Ford achieved its fattest North American profit margins in nearly five years, and FCA earned a record $3 billion in North America.

    Ford was confident enough to increase its full-year forecast and repay about $15 billion it borrowed in the spring to weather the crisis, while GM acted sooner than it had promised to reimburse salaried employees for the portion of their pay it started deferring when the pandemic began.

    Both Ford and FCA attributed their strong third-quarter profits to higher- than-expected demand and strong pricing on pickups and utility vehicles, factors they hope will buoy results through the end of the year.

    But none of the companies is declaring victory quite yet. The potential for additional shutdowns or sales slumps hangs over the industry as coronavirus cases in the U.S. and Europe reach record levels.

    "You look around and see where the coronavirus is spiking and the impacts it could have; it is a concern that we have to keep in front of us and have to manage," Ford CFO John Lawler said. "The thing we can do is continue to keep our people safe and make sure we have all our protocols working very well and to just be vigilant, watch and make sure we're planning well."

    New product blitz

    The third quarter may have saved Ford's year. The auto maker had predicted a full-year adjusted loss but now expects to make between $600 million and $1.1 billion before interest and taxes.

    That's in spite of three costly vehicle launches in the next few months. Ford says it expects sales of F-Series pickups to fall by 100,000 in the fourth quarter as it transitions to a redesigned model, likely depressing earnings.

    Jim Farley, who took over as CEO on Oct. 1, admits Ford still has much work ahead of it. He pointed to Ford's $2.4 billion net profit and other positives about the third quarter as an indication of solid progress, however.

    "We haven't suddenly fixed the issues in our automotive business, but we have a clear turnaround plan to get that done," Farley said in a statement.

    Investors are hopeful that Farley will be able to execute that plan and communicate the improvements Ford is making better than his predecessor, Jim Hackett, did. Hackett put much of the plan now delivering results in place but failed to generate much enthusiasm about Ford on Wall Street. Chris McNally, an analyst for Evercore ISI who downgraded his rating on Ford stock in January, upgraded it in September. In a note to clients last week, he said Ford is performing impressively. "It's hard not to be optimistic that a turnaround may be underway," he wrote.

    Strong finish expected

    FCA likewise is entering a momentous period marked by vehicle launches and the merger with PSA Group that is scheduled to close in early 2021, creating a company to be known as Stellantis.

    The pandemic hit just as FCA was preparing for a product offensive that will see the brand competing in new spaces. The upcoming Grand Wagoneer and Wagoneer will take Jeep upstream, for instance, while the Wrangler plug-in hybrid adds a fuel-efficient wrinkle to the off-road adventure brand.

    "We're obviously clearly excited about the future prospects of being part of Stellantis, and we're even more convinced than ever [about] the potential this landmark merger will give us," FCA CEO Mike Manley said. "While the last quarter of the year will have its own set of challenges, we believe we can have a strong finish to the year successfully positioning us as we embark on this new era as a combined entity."

    Manley said most plants are operating near pre-pandemic production levels, aside from planned downtime for model changeovers.

    After the strong third-quarter showing, which included $1.4 billion in net income, FCA reinstated its guidance for the year, projecting adjusted earnings of $3.5 billion to $4.1 billion, assuming no further disruptions from the pandemic. That would mean fourth-quarter earnings roughly equal to its combined total for the first three quarters.

    FCA was able to play to its strengths to help it weather the pandemic, said Tyson Jominy, vice president of data and analytics at J.D. Power.

    "As the peak of coronavirus occurred, consumers really started shifting toward trucks in general, large pickups, midsize pickups and SUVs," Jominy told Automotive News. "FCA was extraordinarily well positioned for that consumer shift toward their bread and butter."

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