Another substantial bad-news announcement from America's automobile industry is scheduled this week when the Ford Motor Co. is expected to announce a net loss in the final quater of 1979 -- the first red-ink entry recorded by the nation's third largest industrial corporation since the 1974-1975 recession.
Moreover, Ford will detail on Thursday a steep loss from North American operation alone in the full year that is expected to come close to Chrysler Corp.'s record $1.1 billion overall net lost last year. Ford earnings from overseas and other operations in the final three months of 1979 won't be enough to offset the North American returns, and that will result in the expected overall loss for the quarter.
In effect, two of the nation's Big Three car and truck manufactures will have rolled up unprecedented, combined deficits from U.S. and Canadian operations of more than $2 billion in just 12 months.
Even industry giant General Motors Corp., which is winning about 60 percent of the market for U.S. produced cars, suffered a decline of 18 percent in overall profits last year to $2.9 billion. GM's business in the U.S. contributed about 79 percent of the total profits -- roughly $2.3 billion -- compared with 87 percent the previous year.
Thus, GM's profits from U.S. operations are about equal to the combined losses of Ford in North America and of Chrysler, indicating at best a break-even year for the automobile industry in its home base. Because 1979 was a year of continued (albeit sluggish) overall economic expansion, the profit-and-loss figures from Detroit tell a story of dramatic crisis in one of the most basic business sectors.
In the wake of Chrylser's perilous, rapid and much-publicized descent toward insolvency in the past year, Ford's dissapointing domestic sales record and massive losses from automobile operations in this country have led to concerns that still another of America's premiere enterprises is on the ropes and might end up following Penn. Central, Lockheed and Chrysler in a furture appeal to Washington for financial aid to prevent failure.
At this point, there is no such danger. Ford happens to be one of the most diversified of all American corporations and long has been the most successful of all the U.S. automotive firms in international markets. It may come as a surprise to many Americans, but Ford indeed is recognized around the globe as one of a handful of firms that sets the example for success in building and selling cars and trucks.
In Europe, for example, Ford bult a record 1.69 million cars and trucks last year. Ford sold more trucks in Europe than any other corporation and was the leading seller of cars in Britain (with both of the two top cars, Cortina and Escort), Ireland and Norway. Ford also set records in Latin America; 28 pecent of the cars and more than 50 percent of the trucks sold there last year were made by Ford.
When profits from such successes overseas as well other diverse businesses are added up, they more than offset the huge losses from North America. Ford Motor Co. overall remained very profitable last year with earnings of more than $1 billion compared with $1.59 billion in 1978.
"It was the third best year in our history," said Ford President Philip Caldwell recently, which means Ford earned something more than $8.36 a share reported during 1976 but less than $14.16 a share in 1977 and $13.35 a share in 1978.
Only about 10 American businesses -- oil firms, automakers, General Electric Co., International Business Machines and American Telephones & Telegraph -- earn profits at a rate that exceeds a billion dollars a year.
The extent that Ford has been able to remain in that select group despite its North American problems provides evidence of great depth and strength.
Even in the United States Ford has had recent successes that don't get talked about much at a time when Detroit is focusing on the dominance of the domestic marketty GM and Japanese automakers. Ford and Lincoln-Mercury car sales last year were the fifth highest in history, at 3.36 million units, and that was down 17 percent from 1978. But consider.
Ford truck sales of 1.18 million were the highest in the industry, the third consecutive year that Ford has beat GM's Chevrolet division in trucks.
In the compact-and-smaller car market, the five top selling cars last year were: 1) GM Chevy Chevette, 375,700; 2) Ford Fairmont, 338,800; 3) Chevy Citation/Nova, 308,400; 4) Ford Mustang, 304,100; and 5) Toyota Carolla, 257,000.
Ford has the best-selling cars in both the small sporty segment (Mustang over Toyota Celica by a wide margin) and compacts (Fairmont).
At the same time, large Ford car sales have plummeted and profits evaporated because the mix of cars offered didn't include enough high-volume smaller vehicles.
As a result, Ford and its workers are going through an extremely painful period. Until the hemorrhage of profits from North America is stopped, Ford's economic muscles will be weakened. For one thing, the absence of adequate earnings will force some horrowing -- bringing with it interest expenses -- by a company that hasn't often dipped into the capital markets.
In addition, a "car price revolution" can be expected, with smaller cars not so cheap in the furture, Caldwell noted over lunch here recently. In effect, the value of fuel economy will become a factor in pricing, and the difference in cost between a small car and a larger one will be far less than the American public has come to expect.
"U.S. cars are the cheapest in the world. Foreigners pay a lot more, but it's like a military secret," Caldwell asserted. The heavy investments required to produce small cars in volume will necessitate a new higher pricing structure, in the view of Caldwell and others in the auto industry. The alternative would be making the U.S. industry uncompetitive with other manufactures, and "part of our political muscle (as a nation) comes from our economic and technological muscle," which higher retail prices must support, Caldwell said.
In the 1980-1984 period, Ford is planning to spend $4 billion a year around the globe to expand and modernize its plants. The projected spending in North America alone is $2.4 billion this year and, for the 1978 to 1985 model vehicles sold in the United States and Canada, product development and manufacturing plant spending will be some $20 billion.
With industry profitability expected to continue a downward trend during 1980, Ford's short-term problems are evident. A large-car plant in Los Angles has been closed permanently. Cutbacks in employment have taken place or are planned.The company has embraced rebates to sell some of its backlog of vehicles. Some top officers are departing. Government agencies still are studying allegations of questionalbe payments in Ford's past.
"A senior Ford executive is looking for a job now because Ford has finanical problems that would make Chrysler' look like kindergarten stuff," said one executive search firm official in Washington, D.C., who has tried to get the Ford man in the past and was turned down. "Now he can't see any future at Ford," the search executive added.
Caldwell, the chief executive who took over Ford's leadership last Oct.1 when Chairman Henry Ford II retired from day-to-day management after 34 years at the helm, obviously is concerned about his company's North American woes. But, using the language of his company's recent promotions, Caldwell says the furture for Ford is "incredible."
Speaking to reporters here recently as Ford unveiled a new computer engineering center and talked about cars of the furture, Caldwell declined to engage in "self-flagellation over sales results or North American profits." Instead, he emphasized "very specical problems" in the U.S. market today and "truly outstanding world results," including the 15th consecutive year of sales leadership outside the U.S. market and Ford's performance as the largest single selled of goods outside its home market of any business enterprise.
More to the point, Caldwell said that the difficulties his company is experiencing reflect "the most massive and profound industrial revolution in peace-time history."
Not only Ford but all automobile manufactures throughout the world face the prospect of heavy investment to build cars in furture years that can be sold and serviced in many countries. The spending requirements to build virtually a new international network of factories are so massive that high-volume sales across borders will be required. In response to this challenge, Caldwell and his associates say that they are inaugurating an era of the "world car."
The first public evidence of this development will be available in auto showroom around the country next fall when Ford introduces its new Ford Escort and Mercury Lynx. The new engineering computer center here and a rebuilt engine plant nearby (in which $650 million was invested), are among the mostly new faclities built as part of the "world car" foundation. a
Ford's new small cars, with four-cylinder engines, had been carrying the code name of "Erika." And there will be sister cars for Escort and Lynx built in other markets.
William O. Bourke, the man most on the spot today as executive vice president in charge on Ford's North American auto operations, clearly is counting in the introduction of Ford's new cars next fall to help regain his company's share of the U.S. market. He said he wants to "settle this myth" that European and Japanese automotive technology surpasses that in this country.
"Different social conditions, living habits and economic circumstances -- among which I would emphasize the price of gasoline -- have given overseas producers what appears to be an advantage in the design of small cars," he said. "But they have no inherent technological advantages which enable then to do a better economy job than we can."
Bourke also emphasized that one of the major benefits of total retooling for new production "is that we can start fresh, building in productivity grains right from the beginning," gains from broad use of computer technology on a scale not currently being used by foreign car makers and from the introduction of such new components as electronic engine controls fuel injection and carburetion developments that can be traced to the nation's space program.