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Ford off, but beats Street
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October 18, 2000: 1:11 p.m. ET
Firestone tire recall pushes profits well below year-ago figures
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NEW YORK (CNNfn) - Ford Motor Co. said Wednesday earnings fell 7 percent in the third quarter, mainly because of Bridgestone/Firestone's recall of 6.5 million tires, most of which were installed on Ford vehicles.
The world's No. 2 automaker said net income fell to $888 million, or 53 cents a share, from $959 million, or 78 cents a share, in the year-earlier quarter. Analysts polled by earnings tracker First Call had forecast 50 cents a share.
Including special charges related to the company's acquisition of Land Rover and the impact of a complex stock swap deal, the company earned 50 cents a share.
"The decrease in earnings of $71 million is more than explained by the impact of Firestone's ongoing tire recall," the company said. Sales at Ford (F: Research, Estimates) rose to $40.1 billion from $37.3 billion.
Ford CEO Jac Nasser had said he expected the recall to cost the company $500 million.
"Getting our customers onto good tires has been, and continues to be, more important than short-term profits," Nasser said. "This was a difficult quarter for our customers, our employees, our dealers and our shareholders, and we are committed to quickly completing the Firestone tire recall."
 Ford said the shortfall comes as a result of temporarily shuttering three manufacturing plants in the quarter in order to free up replacement tires for the recall. The company also said incentives, in spite of driving more sales, ended up hurting earnings in the quarter.
Ford reported its earnings on the same day that a report alleging Ford passed up a chance to enhance the safety of its Ford Explorer S/UV, which government data shows is prone to rollovers because of its high center of gravity.
More rollover accidents have been reported with the Explorer because they were equipped with Firestone's defective tires in recent years.
Ford has come under fire from congressional investigators looking into Bridgestone/Firestone's Aug. 9 recall because many of the tires were mounted on Ford's Explorer sport/utility vehicles.
The tires, which are prone to tread separation, have been linked to 119 deaths and more than 500 injuries. But investigators also suspect that the Explorer, with its high center of gravity, is vulnerable to rollovers, particularly after a tire failure.
According to a Los Angeles Times report Wednesday, internal company documents indicate that Ford passed up a chance during a 1995 vehicle redesign to lower the Explorer's center of gravity by lowering the engine height. Officials decided not to lower the engine to hold down redesign costs and preserve profit margins of at least 40 percent, the newspaper reported.
Henry Wallace, Ford's chief financial officer, told CNNfn's "In the Money" program Wednesday that he had not read the Times report, but reiterated that the Explorer is one of the safest S/UV's on the market and that recent accidents were the result of faulty tires, not a vehicle design flaw.
Wallace, told analysts during a conference call Wednesday that he is comfortable that the company would meet analysts' 86-cents-a-share fourth-quarter earnings forecast, adding that he expects 3 percent growth in North American auto sales as well as in Europe.
Wallace also said Ford would achieve cost cuts of between $700 million and $800 million for 2000, but that it would miss its $1 billion cost-cutting target.
He also said he expects to complete the acquisition of rental car company Hertz Corp. in the first quarter.
Analysts quizzed Wallace about consumers' readiness to absorb a "blizzard" of new vehicles Ford plans to launch in the next year, including the new Explorer S/UV, Mercury Mountaineer next fall, the Thunderbird and the Mondeo in Europe.
Wallace said he was confident of the success of the new products.
Click here for a special report on the Firestone-Ford recall
The recall did nothing to help worldwide auto earnings, which fell to $391 million from $535 million a year earlier. Worldwide vehicle sales rose $2 billion to $33 billion in the quarter. The picture was no better in North America, where automotive earnings slumped to $769 million, down $98 million from a year earlier.
Operations in Europe, South America and Asia posted a $378 million loss compared with a loss of $332 million a year ago.
David Garrity, an auto analyst with Dresdner, Kleinwort, Benson told CNNfn's "Before Hours" program that the Firestone recall combined with the company's recall Tuesday of more than 351,000 models of the Focus due to three defects could hurt Ford's future profitability. [WAV 386KB] [AIFF 386KB]
The company's auto financing division, Ford Credit, earned $386 million in the quarter, up $69 million, or 22 percent.
The Hertz Corp. subsidiary earned $143 million compared with $139 million.
Ford stock edged up 19 cents to $24.62 in morning trading. 
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