NEW YORK (CNN/Money) - Ford Motor Co. reported sharply lower second-quarter earnings Wednesday that beat Wall Street expectations, but the world's No. 2 automaker warned it expects a larger-than-forecast third quarter loss.

Ford earned $417 million, or 22 cents a share, down from $610 million, or 31 cents, a year earlier, excluding special items. Analysts surveyed by earnings tracker First Call had a consensus forecast of 19 cents per share.

The company basically broke even on its core automotive operations as pre-tax profits fell to $3 million from $403 million a year ago. North American pre-tax auto profits fell to $445 million from $921 million, but losses in European auto operations swelled to $525 million from $18 million. But losses narrowed in its auto operations in other world regions.

Profits also narrowed at its Hertz car rental unit, as pre-tax profits fell to $57 million in the period from $72 million a year earlier. The one area that saw strong improvement was Ford Credit, where net income rose to $401 million from $330 million a year earlier, due to higher income related to securitizations and a lower provision for credit losses.

The company said it now expects a third-quarter loss of 15 cents a share, excluding special items, although it still hopes to earn 70 cents a share for the year.

First Call's current forecast calls for a 12-cent-a-share loss in the third quarter and full-year earnings of 67 cents. The company earned 12 cents a share in the third quarter of 2002 and 47 cents a share for all of 2002.

Shares of Ford (F: down $0.58 to $11.06, Research, Estimates) were little changed Wednesday morning following the report.

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The company said the new guidance is due to planned production volume cuts in the third quarter. Ford expects to build 810,000 vehicles in North America, down 141,000, or 15 percent, from a year earlier. European production is being cut 22,000 vehicles, or 6 percent, while its luxury Premier Auto Group production will fall 4,000, or 3 percent.

Company executives told analysts that they expect cost savings this year to reach $2.5 billion. Ford also said it expects to see high incentive levels and Ford Credit to return to trend levels with more modest profits. Auto operations are expected to be roughly breakeven for the year which, given a first quarter profit of $659 million, indicates a loss in the second half of the year.

Revenue fell to $40.7 billion from $42.3 billion a year earlier due to continued declines in net pricing (price less the cost of marketing and incentives) along with lower sales volume. Total worldwide vehicle sales fell to 1.7 million in the quarter, down 137,000 from a year earlier, as U.S. market share fell to 20.6 percent from 21.2 percent in the first quarter and 21.3 percent in the year-earlier period.

Ford Vice Chairman Allan Gilmour told analysts that despite projections of an improved economy in the second half of the year, Ford's sales projections and guidance are based on more modest expectations.

"The big imponderable is how the economy is going," Gilmour said. "We're not planning on any substantial upturn either this year or as we turn into the early part of next year. Economists may be expecting one, but they were expecting one a year ago. Eventually they'll be right."

Company executives said that despite the increased losses in Europe and declining U.S. sales, they generally were pleased with results, particularly their cost-cutting efforts. The $2.5 billion savings target is far above the $500 million target set only a year ago.

"It's a tough world out there. It's a tough world in terms of industry volumes, it's a tough world in terms of pricing," Gilmour said. "We've pushed on every element of costs in every area of the world."