Car giants’ happier new year

GM and Ford unveil better-than-expected financial performance despite market uncertainty.

The world’s biggest automotive powerhouses, often bearers of bad tidings in recent years, enjoyed a pain-free start to 2004. General Motors and Ford, first and second respectively, both unveiled a better-than-expected financial performance for the first quarter.

GM made a slightly lower profit than at the same stage last year, $1.3bn (£730m) compared with $1.5bn, but did better than had been forecast.

Ford dramatically outstripped expectations with a profit of $1.9bn – more than doubling 2003’s figure and the company’s best quarterly performance for several years.

The details behind the figures revealed the vast juggling act being undertaken by the two US behemoths as they struggle to stay ahead of the game.

GM, for example, failed to make headway in the US and especially in Europe, where its losses almost doubled to $116m thanks to intense downward pressure on prices and adverse currency conditions. The company said it expects the new Astra to improve its European position later in the year.

GM roared ahead in Asia, by contrast, thanks to soaring vehicle demand in China, where it has invested heavily in production capacity.

GM paid less tax across the world but was hit by heavier than expected costs for product recalls.

While GM’s Q1 performance could be described as solid, Ford’s was a striking turnaround from the gloom of the past few years.

Ford has embarked on a major cost-cutting exercise since it reported a $5.5bn loss in 2001, prompting fears that the company faced financial disaster.

The improvement was not, however, solely down to reduced expenditure. Global automotive sales rose 13 per cent to $38.8bn, and Ford shifted 80,000 more vehicles off its forecourts than at the same stage last year.

In Europe, Ford rebounded from a $247m loss to a $5m profit. Sales in Europe were $6.5bn compared with $5bn in the first quarter of 2003. Ford’s Premier Automotive Group (PAG), which includes brands such as Jaguar, Aston Martin and Volvo, turned an $88m loss into a $20m profit.

Ford also did well in Asia, where the company returned to profit and saw sales rise by $300m compared with a year ago.

The revitalised Ford hopes to strengthen its position further through the launch of models including the Escape Hybrid, Mustang and Land Rover LR3 Discovery.

While the latest figures make generally cheerful reading for the world’s big two, dark clouds continue to dog their horizon.

Some commentators have warned that the automotive giants might have already reaped most of the benefits possible from cost-cuts and outsourcing, and could be knocked back off track by economic factors beyond their control.

One example of an issue looming for the car manufacturers is interest rates. While rates are low in key markets such as the US and Europe, it is easier to offer the type of attractive finance packages that persuade consumers to buy new cars.

The companies, particularly GM, are heavily reliant on their credit finance arms as a source of profits in their own right. Any slowdown in consumers’ willingness to borrow would hit them hard.