Ford, GM to Cut 2005 Q1 Production as Sales Fall Again

Ford Motor Co. (F) and General Motors Corp. (GM) said on Wednesday they will cut production more than expected after weaker U.S. sales in November, which analysts said could hurt profits.

Even as they rolled out more lucrative incentives this year, Ford (search) and GM (search) struggled with growing inventories of unsold vehicles as sales of their aging car lineups slipped and consumer tastes shifted from their stable of large sport utility vehicles.

However, the Chrysler side of DaimlerChrysler (DCX) and many of the larger foreign automakers such as Toyota Motor Corp., Nissan Motor Co. Ltd. and Honda Motor Co. Ltd. reported stronger November sales.

"I think it will produce lower year-to-year earnings in the first quarter," said Burnham Securities analyst David Healy, referring to the GM and Ford production cuts. "For every unit they cut out of their production schedule, there goes $4,000 to $4,500 out of pretax earnings — and that's going to be hard to make up elsewhere."

Wall Street closely watches vehicle production because automakers count earnings from cars and trucks when they are manufactured and shipped to dealers, rather than when they are sold off dealer lots.

Ford, the second-largest U.S. automaker, said it expects vehicle production in North America during the first quarter next year to fall by 78,000 cars and trucks, or nearly 8 percent. Analysts had expected Ford to cut production about 5 or 6 percent.

"The slightly softer-than-expected production (cut) will weigh on the stock in the near-term, but we think the market will be reassured by what looks like healthy new model momentum at Ford's passenger car business," JP Morgan analyst Himanshu Patel said in a research note, referring to Ford's recent car launches.

The production cuts suggest that Ford and GM now believe that higher incentives are no longer enough to boost sales and offset market-share losses, analysts said. Both Ford and GM have already cut production in the fourth quarter.

Ford reported its sixth straight month of weaker U.S. sales. Excluding its foreign brands such as Jaguar and some heavy-duty trucks, Ford sales fell 4.3 percent to 217,859 vehicles in November from 237,099 in the year-earlier period, despite the launch of its hotly anticipated new Mustang sports car. The results are adjusted to account for an extra selling day in November last year.

GM, the world's largest automaker, said it expects to manufacture 95,000 fewer vehicles in North America in the first quarter next year, down about 7.1 percent from the first quarter this year. Analysts had generally expected GM to cut production by around 6 percent.

GM's U.S. sales, excluding its Saab brand and some medium- and heavy-duty trucks, fell 13 percent in November to 297,355 cars and trucks. Consumers may have postponed purchases until December, when GM and other automakers traditionally launch year-end incentives, analysts said.

All sales results are adjusted for an extra selling day in November last year.

Accompanied by heavy advertising, GM launched its "Lock 'n Roll" incentive offer in early November, giving consumers the chance to lock in current financing rates on both a new 2005 model-year vehicle bought in November, and a second GM model bought years later. But Paul Ballew, GM's head of sales and industry analysis, said "Lock 'n Roll" did not meet GM's expectations.

Chrysler reported its seventh consecutive month of stronger sales, with a gain of 8.8 percent, driven by the success of the new Chrysler 300, the highly touted large sedan.

Analysts expect industry sales to fall to a seasonally adjusted annual rate of around 16.5 million, down from 16.9 million in both October and November last year. Many consumers may have postponed buying a new car or truck until December, when automakers are expected to raise incentives further in order to meet annual sales targets, analysts said.

Japan's Nissan Motor Co. Ltd. (search) posted another month of double-digit gains, with a rise of 31 percent in vehicle sales. Strong sales of Nissan's new Pathfinder sport utility vehicle helped boost results, the automaker said.

Sales for Toyota rose 8.8 percent, Honda climbed 3.1 percent while Germany's BMW AG was flat.