Guy Gordon: A tale of 2 automakers
DETROIT – It's a tale of two companies. The best of times for one, the worst of times for the other.
General Motors profits for the April-June period fell 80 percent compared to a year ago. Ford had the biggest quarter in its history, making $2.44 billion dollars here in North America.
Usually, their fortunes rise and fall together, but with GM weathering a recall of 29 million vehicles this year -- it's pouring rain on one side of the road, while the sun is shining on the other.
But in the next six months, it may be neither as bright for Ford or as dark for GM.
The ongoing recall mess at GM took more than $1 billion dollars off the bottom line, but the company's fundamentals -- whether they are building and selling cars profitably-- are very strong.
"Excluding the recalls, North America earnings were up 20 percent year over year at roughly $2.4 billion. And it really shows the strength of our new products given the challenges of the recalls, and the resiliency of the North American team," GM Chief Financial Officer Chuck Stevens told CNBC. But it will take a painful bite out of profit sharing checks for workers, an important stimulus for the local economy.
After record checks of $7,500 per worker last year, North American profits, upon which profit-sharing is based, are $2.3 billion lighter because of recall costs. The fund has only $2 billion in it halfway through the year. But there are signs the recall binge is beginning to end.
"GM has conveyed it is nearing a tapering off of recall related charges and we can expect that to be helpful," according to Stephanie Brinley, analyst for IHS Automotive.
But Michelle Krebs of AutoTrader.com is more skeptical.
"They had another big recall this week. There is no cap on the compensation fund. They say they are getting back to a normal pace for recall costs, but that's yet to be seen," Krebs said.
Ford surprised analysts with higher profits for the quarter, even though it took in $500 million less. They shrewdly kept a tight lid on costs.
"We were able to negotiate in some cases with suppliers, cost reductions and we designed in lower costs and those benefits were able to flow to the bottom line and helped the business turn a record profit," said Ford Chief Financial Officer Bob Shanks.
[Web extra] Watch uncut interview with Ford CFO
But Shanks says earnings at Ford will not be as robust in the second half of 2014. The company is launching 20 new products globally and 16 in North America, including the incredibly important new F-150 pickup truck.
"This is going to be a really tricky launch. This new F-150 is made of aluminum. It's highly innovative, and that will be expensive," Krebs said.
Nevertheless the profitably for both companies is impressive. Currently, Ford is making 11.6 percent profit on every vehicle. Ten percent is considered a worthy goal. And GM is closing the gap, making 9.2 cents on the dollar in Q2.
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