Ford’s profit drop forecast reflects new cars cost image

The company’s prediction of a stalled revenue growth and sliding profit in 2014 caused a stir among investors, but it actually reflects the high cost of introducing the many models it has planned.

Due to Ford saying it faces a fierce competition in a slower-growing U.S. market and the spending needed to preserve strong pricing with its car and truck lineup, the US company also had the biggest drop in share price in more than two years.

Alongside Ford, who plans to introduce 23 fresh or updated models, the competition from General Motors or Toyota also seek to unveil more than 37 new models to North America – resulting in an anticipated cost surge.

The company’s grimmer outlook also reflects the pressure that automakers face to lower prices on outgoing models ahead of introducing fresher vehicles, which then need to be supported by more marketing and promotional spending. Manufacturing and engineering costs also tend to rise when carmakers build plants and prepare existing factories to assemble new models.

Also, analysts expect Ford’s F-150 pickup will be among the new introductions that the company has planned for next year. The automaker’s F-Series trucks are the biggest and most profitable model line in Ford showrooms and will complete this month its 32nd consecutive year as the top-selling vehicle in the U.S. industry.

“It’s going to be really difficult for Ford to grow profits in the face of changing over the F-150, particularly when the product on the other side will have a fundamentally higher cost structure,” said analyst Matt Stover.

Indeed, Ford has said it plans to take weight out of its next-generation F-Series trucks. The company’s anticipated use of aluminum in the body of the pickup – a more costly alternative to steel – could be the most “transformative trend” for the metal since the aluminum can, Lloyd O’Carroll, an analyst at Davenport & Co., wrote in a September report.

Via Bloomberg