Ford Motor Co. (F) Friday slashed its 2005 earnings forecast and warned it no longer expects to reach its 2006 profit goal, citing higher costs, becoming the second big U.S. automaker in less than a month to paint a bleak picture about its future.

The No. 2 U.S. automaker said it expects its 2005 profit to be at least 14 percent lower than anticipated and does not expect to hit its 2006 profit goal of $7 billion before taxes, due in part to higher raw material and health care costs.

The profit warning, which was announced after the market closed, caused Standard & Poor's to cut its debt rating outlook on Ford and its finance arm to "negative," bringing the automaker a step closer to a downgrade to junk status. A downgrade to junk could raise borrowing costs significantly.

Ford faces many of the same problems as rival General Motors Corp. (GM), which warned last month that it will post its weakest first-quarter earnings since 1992, and profits this year could miss forecasts by as much as 80 percent.

"The industry dynamics that Ford and GM face are similar: high material costs, high legacy costs, declining market share, lackluster product cycle success," said John Kollar, auto credit analyst for HSBC Securities.

Ford's 2005 revised outlook comes as it continues to lose market share to domestic and Asian rivals. The company's U.S. sales have declined 5.2 percent so far this year.

"Although one of our strongest ever product line-ups has been well received by consumers around the world, we are not immune to the broad economic challenges we all face in our industry," Ford Chairman and Chief Executive Bill Ford Jr. (search) said in a statement.

"Obviously there are actions we could take to achieve our pretax profit goal of $7 billion for 2006, but we will not mortgage Ford's future by chasing an objective set under vastly different market and economic conditions," he added.

The $7 billion target was viewed as a crucial milestone in the 5-year turnaround plan Ford launched in January 2002, when the industrial icon was teetering on the brink of collapse.

"Historically high prices for steel and crude oil, escalating health care expenses and a weak U.S. dollar presented formidable challenges as we entered 2005," Chief Financial Officer Don Leclair said in a statement.

Ford said those pressures have intensified, while aggressive price competiton continues in the U.S. auto market.

The automaker cut its 2005 earnings forecast to a range of $1.25 to $1.50 per share from its previous estimate of $1.75 to $1.95 per share.

Ford cautioned last month that its 2005 earnings would likely be at the lower end of its forecast range.

The revised forecast excludes the effect of special charges, which are estimated to be in the range of 8 to 10 cents per share for the full year. Analysts on average expect Ford to post earnings of $1.68 per share in 2005.

But despite rising costs, the automaker said first-quarter earnings per share will exceed previous guidance of 25 cents to 35 cents and full-year automotive operating cash flow is still expected to be positive.

The company will report its quarterly results on April 20 and said it will provide an overview of its future then.

Ford shares were down nearly 6 percent, or 63 cents, at $10.40 on the Inet electronic brokerage in after-hours trading late Friday.