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KAI RYSSDAL: As long as we’re on oil, let’s take a detour to Detroit. It wasn’t so long ago — just a month, in fact — that Ford executives were popping the champagne and predicting a return to profitability by the end of this year. You might say they’re feeling a little hung over today. This morning Ford announced it’s going to have to cut production. And as for a return to black ink? CEO Alan Mullally won’t even say whether we can expect that in 2010.
From New York, Marketplace’s Alisa Roth reports.
ALISA ROTH: Back in April, Ford surprised investors with news of a profitable first quarter — partly because of cost-cutting measures that were actually working, and partly because of good sales overseas.
As for the prediction it would be profitable by next year? Consultant Ron Harbour says the company clearly miscalculated:
Ron Harbour: There’s a multitude of variables in that model and one of them has to do with product mix and also what volume would be and where inflation would be and money costs and so on and so forth — gas prices, you name it. Since so many of those independent and uncontrollable variables have changed…
The cost of raw materials keeps going up. Americans are buying fewer new vehicles than they were. And in the last few weeks, it’s become clear that people really are moving away from gas-guzzling SUVs and pick-ups for good. People who are still buying new cars are going for smaller and more fuel-efficient ones.
Bob Schulz is with Standard & Poor’s.
BOB SCHULZ: It hurts, disproportionately, companies like Ford and GM and Chrysler that are less-focused on the smaller vehicles. So it’ll be painful in terms of just … they make less money on the smaller vehicles.
Ford says it’s planning to build more of those smaller vehicles. But that it will keep trying to cut costs by making even fewer vehicles overall. And offering buyouts at more plants.
Schulz says the real concern with today’s announcement is what it says about Ford’s turnaround. If the slow sales — and lots of cash spending — continue into next year, it could take longer than the company or investors thought to get profitable.
In New York, I’m Alisa Roth for Marketplace.
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