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Ford Explorer sales strong
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September 15, 2000: 3:14 p.m. ET
Analysts expect good 4Q due to continued strength in battered model
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NEW YORK (CNNfn) - Ford Motor Co.'s sales of Explorer sport/utility vehicles are in line with year-earlier results, cheering analysts who met with Ford officials Friday.
The company sold 37,119 Explorers in September 1999, making it the nation's best-selling S/UV. Ford spokesman George Pippas confirmed the company believes Explorer sales this month should be about the same despite the recall of 6.5 million Firestone brand tires that come as standard equipment on the vehicles. Nearly 100 deaths in the U.S. have been linked to failures of the recalled Firestone tires, most of which also involving the Explorer.
Top executives of Ford (F: Research, Estimates) met with analysts in New York as they prepared to restart three plants Monday that produce the Explorer and other light trucks using the Firestone tires. The three-week shutdown, which was extended a week from original plans, freed up about 100,000 tires to use as replacements in the recall rather than be put on new vehicles. The shutdown has caused analysts to lower third-quarter earnings estimates, although Ford has yet to give specific guidance on costs or lost revenue associated with the recall.
Share buyback, Daewoo move cheer analysts
The company surprised many analysts Thursday by going ahead with a share repurchase and setting the buyback target at $5 billion, about $700 million above previously announced plans. The world's second-largest automaker also announced early Friday that it would drop its $6.9 billion bid for troubled Korean automaker Daewoo Motor.
 Analysts generally cheered the announcements about the share repurchase and the withdrawal from the Daewoo bidding. And some who were at the meeting said they were pleasantly surprised by what the automaker had to say about sales of the Explorer, a key profit driver for Ford in the past.
"Explorer sales are running flat with last year, which is pretty incredible considering the avalanche of bad publicity," Lehman Brothers auto analyst Nicholas LoBaccaro said. "They might end up with some tough comparisons in October because of low inventories from shutting down plants (due to the tire problem). But I don't think the fourth-quarter earnings are in any jeopardy. I think the third quarter, that's where you're going to see an awful lot of costs associated with Firestone."
Confidence in 4th-quarter earnings
Scott Merlis, analyst with Wasserstein Perella Securities, told CNNfn he's confident fourth-quarter earnings will meet or come close to meeting the current forecasts of 88 cents a share.
"Explorer sales are very strong despite the negative publicity and despite the fact it is near the end of (current model design) life cycle and despite the fact it has substantially lower incentives than competing models," Merlis told CNNfn's In the Money program Friday. "Evidently the consumer is seeing this as a tire problem and not a vehicle problem and the consumer is voting with his and her pocketbook." (418KB WAV) (418KB AIFF)
One other analyst sees some downside risk in the fourth quarter. David Garrity, analyst with Dresdner Kleinwort Benson, told Reuters Friday that the fourth quarter could be hit by both Firestone problems and trucker strikes in Europe associated with the high cost of fuel.
"I wouldn't be surprised if we see results below year-ago quarter results," Garrity said. "It is a short-term underperformance for fairly defined reasons," he added.
2001 earnings raised due to buyback
After meeting with the company, Goldman Sachs analysts Gary Lapidus lowered his full-year estimates by 3 cents a share due to the extra week of closure of the Ford plants. But he said that while Ford is at risk of lost sales and long-term S/UV market share as a result of the crisis, he thinks there's a good chance it will bounce back without long-term damage to its brand.
"Consumer polls indicate some potential long-term effects, e.g., the Harris poll indicating 25 percent of customers would 'seriously reconsider' a Ford truck purchase," Lapidus wrote "However, polls are fickle and the public has a very short attention span. Ford's response to the crisis has been textbook. We think customer concerns will dissipate once the press coverage slows. That's especially true once a root cause is identified and a fix is in-place."
 Ford sold a record 40,157 Explorers in August, up from 39,000 a year earlier, although an extra selling day in the month this year meant that sales per day slipped slightly. Sales per day is the common comparison method used in auto sales.
Ford officials admitted they had a 42,000 target for August Explorer sales. They have not revealed the September sales target.
Ford's Pippas said the three-week plant closure, along with a planned closure in November to retool for a new 2002 model due early next year, could hurt inventories and sales later this year. About 15,000 fewer Explorers were made in the last three weeks than originally expected.
"By the time we get to the end of September, Explorer inventories are going to be substantially less than what they were a year ago," he said. "You can't sell what you don't have."
Ford's share repurchase plan led Lapidus to raise his earnings estimate for 2001 by 15 cents a share to $3.95. A lower number of shares outstanding directly raises the earnings per share, and many analysts had expected Ford to delay the buyback while it dealt with the Firestone problems.
Departure from Daewoo bid seen as positive
The departure from the Daewoo bidding also could help earnings per share, as some analysts had expected the $6.9 billion price to hit earnings.
"It (dropping the Daewoo bid) definitely is positive short-term, and probably good intermediate and long-term as well," said LoBaccaro. "When you look at Asia, it's where an awful lot of future growth for the industry will take place. But it's an incredibly unprofitable region to do business in."
Ford won the right to be the sole bidder for Daewoo in June, beating out a joint bid from General Motors (GM: Research, Estimates) and Italy's Fiat as well as one from German-American automaker DaimlerChrysler (DCX: Research, Estimates) and Korean automaker Hyundai. It has been conducting due diligence of the proposed deal since.
Ford Vice Chairman W. Wayne Booker said early Friday, "We believe that a proposal was not possible that would be in the best interest of Daewoo and Ford and their respective stakeholders."
Daewoo officials said Friday there is a possibility of another auction. Despite losses and debts, Daewoo is seen as an attractive entry to Korea, the world's sixth-largest auto market, as well as the rest of Asia and eastern Europe, where it also has a presence.
"Bidding proposals from contenders other than Ford remain in effect," Financial Supervisory Commission (FSC) Chairman Lee Keun-young told reporters in Korea Friday, according to Reuters.
GM still eyeing Korean automaker
But General Motors, perhaps with its partner Fiat, may be the only one that is at the table this time.
"As we have said throughout the auction process, we continue to be interested in Daewoo Motor. We regret that Daewoo lost valuable time while its condition continues to deteriorate," GM spokesman John Mueller said. He would not comment whether that would lead GM to lower its offer price, which is believed to be considerably less than Ford's bid.
"We need to better understand the situation and consult with our Fiat partners. We'll be available to discuss the situation with responsible Korean parties."
Mueller said the end of the Ford bid is not a complete shock.
"There have been rumbles in recent weeks that things weren't going well," he said.
Reuters reported that DaimlerChrysler said it would not make another bid.
Lehman Brothers' LoBaccaro said GM's continued interest in Daewoo is not a surprise.
"GM was the very bummed out they were not involved," he said. "They're consumed with being the number one automaker in terms of unit production. Ford is consumed with being the automaker with the largest profit."
Shares of Ford gained 25 cents to $26.13 in trading Friday, while GM shares $1.94 to $71.06. 
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Ford Motor Co.
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