DETROIT, January 28: Is this as good as it gets for US Big Three's automotive profits? Powered by Ford Motor Co's results, announced on Tuesday, Detroit's automakers rang up all-time high profits of $16.4 billion for 1997, topping the old record of $13.9 billion set in 1994.That performance may prove difficult to top this year, as the companies are expected to contend with increased imports from lower-cost Japanese automakers, forecasts of a flat US demand, and little room to adjust prices, analysts and company officials said.
``They are all facing the task of having to work twice as hard to get less to the bottom line than they did a few years ago,'' Furman Selz analyst Maryann Keller said.
Adds Ford chief financial officer John Devine: ``It's a good market, but it's competitive as hell.''
Ford, which earned the biggest chunk of the $16.4 billion -- $6.9 billion -- and whose stock price rose the most, will find it especially difficult to have a repeat of 1997, analysts said.
That is partlybecause the US No 2 automaker will not experience the same incremental boost of sales of high-profit light trucks, such as the Ford Expedition and Lincoln Navigator sport/utility vehicles, that it achieved last year, Keller said.
Even so, Ford remains the only member of the Big Three on Furman Selz' recommended list. One reason is the planned spin-off of Associates First Capital Corp later this year. The company has proposed giving Ford shareholders one share of Associates stock for every four in the parent company.
Also, Ford is also sitting on a record $20.8 billion in cash, and may launch a stock buy-back later in 1998, she said. At present, Ford is the only one of the Big Three without a share repurchase programme.
Credit Suisse First Boston analyst Nicholas Colas said Ford ``will be a victim of its own success'' in 1998. He noted that Devine said he was comfortable on Tuesday with analysts estimates that Ford would earn $5.20 per share in 1998 -- down from $5.62 in 1997.
First Call, whichcompiles analyst estimates, said Chrysler is the only Big Three automaker that is expected to have higher earnings in 1998.
Colas said he considered Chrysler, the US No 3 automaker, to have the best potential among the Big Three to outperform the stock market through the first half of this year because of new products such as the Durango sport/utility.
General Motors Corp has an opportunity to do better in North America in 1998, as it cuts more costs and improves its vehicle mix, Colas said. But it has to contend with problems in Europe and Latin America.
GM also must handle the introduction of its new full-size pickup trucks, which Keller called ``the most-watched launch in history'' because of the high-volume products involved.
But with the exception of Ford -- the only member of the Big Three to outperform the stock market -- last year's strong profits have not translated into share prices gains.
Colas said most institutional investors do not invest heavily in auto stocks because they could findbetter returns elsewhere.
He said the industry faced a fundamental problem -- ever-expanding manufacturing capacity, which tends to depress prices.
``To get a change in investor sentiment, you need to shutter some excess capacity and consolidate some automakers,'' he said.
Copyright © 1998 Indian Express Newspapers (Bombay) Ltd.
