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Attack hit auto sales
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October 2, 2001: 4:15 p.m. ET
Incentives, Hertz losses exacerbate Ford losses; GM sales strong, Chrysler weak
By Staff Writer Chris Isidore
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NEW YORK (CNNfn) - Ford Motor Co. warned Tuesday that its third-quarter loss will be larger than expected due to increased incentive costs in the wake of the Sept. 11 terrorist attack and a drop in earnings from its Hertz rental car unit.
Ford (F: up $0.56 to $17.80, Research, Estimates) also reported a nearly 10 percent drop in U.S. sales in September, a far bigger decline than the 3 percent sales drop seen at General Motors Corp. (GM: down $0.18 to $42.95, Research, Estimates), the world's largest automaker.
But Ford's U.S. sales drop was far smaller than the declines at a number of other automakers, including Chrysler Corp., the North American unit of DaimlerChrysler AG (DCX: up $1.36 to $32.26, Research, Estimates), as well as the drop at such overseas-based automakers such as Honda Motor Co. and Volkswagen, which in recent months had been able to post sales gains in the face of lower sales at the traditional Big Three U.S. automakers.
Toyota Motors, which is the fourth-largest U.S. automaker, posted a 4.2 percent decline in U.S. sales to 127,203 vehicles.
Chrysler Group saw sales fall 28 percent to 152,165 vehicles, although the company said it saw a pick-up in sales the last week of the month, as was the case with other automakers.
Chrysler said that due to the sharp sales decline it will shut four plants for one week, and one plant for three weeks, resulting in 26,000 fewer cars produced in the month than previously expected.
New woes for Ford
Lloyd Hansen, Ford's controller, wouldn't give details of how much the No. 2 automaker will miss results by, but said that new factors had hit performance since its previous Sept. 14 warning. That warning had said that the third-quarter loss would be worse than 10 cents a share, but at that point it was warning that the problem was due to production problems in the wake of the attack.
Hansen said the problems prompting the new warning included the cost of the company's zero-interest incentive program, and the steep drop in revenue at the Hertz car rental operation, a wholly-owned Ford subsidiary.
"Looking at the zero percent financing program, it provided a real kick-start to business. The cost of the program however was high," Hansen said in a conversation with analysts. He said that marketing costs, which includes incentives, came in at about 16 percent of overall revenue.
Hansen said Hertz has seen rental revenue drop by 35 percent since the Sept. 11 attack, hurting results for the company overall.
"The whole (rental car) industry, along with the airline industry, is probably the two industries that have been hurt the most," said Hansen. The problems at Hertz also hurt Ford sales as the rental unit put off purchases of new Ford vehicles.
Analysts have been slow to change their forecasts for Ford, despite the Sept. 14 warning. First Call's consensus forecast calls for only a 6-cent-a-share loss for the quarter, with analysts' estimates ranging from a 25-cents-a-share loss to a 10-cent-a-share profit. The company earned a 50-cent-a-share profit in the third quarter a year ago.
George Pipas, the manager of sales analysis for Ford, described September sales as a roller coaster, with a gain at the beginning of the month, a sharp fall in the middle in the wake of the attack, and a gain again at the end. But he said that the company has difficulty projecting where sales will go from here in the fourth quarter.
"We believe that auto sales will be lower than we previously thought," he said. "How much lower, we don't know."
The Ford sales numbers were far worse than competitor GM, which said it saw very strong sales in September, as it saw a gain in sales at the beginning and end of the month almost make up for the drop in sales in the wake of the Sept. 11 attack.
In fact retail sales were basically flat, as most of the total decline in U.S. sales could be attributed to a nearly 25,000-vehicle decline in fleet sales, primarily due to lower purchases by rental car companies that were expected before the attack.
GM said its sales were up 6 percent for the first 10 days of the month, and gained 22 percent in the final week of the month.
Overall the largest automaker had U.S. car and light truck sales of 386,016, down from 413,890 in the year-earlier month, which represented a 3 percent decline.
And even though GM has an even more extensive zero-percent financing program than Ford, GM issued no earnings warning or guidance.
"The marketing program is not breaking the bank, contrary to other reports today," said Paul Ballew, executive director for Market and Industry Analysis at GM.
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GM did announce it would slightly reduce its fourth-quarter production target to the 1.27-million-to-1.29-million range, a decrease of 30,000 to 50,000 vehicles from previous estimates. It said this was due to an expected decrease in sales to car rental companies in the quarter, and that the reduction will be accomplished through an elimination of overtime at various factories. 
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