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Ford profit falls ahead of pivot to appease Trump

Michigan - Ford’s profit dropped, matching analysts’ estimates, in the last quarter before the US carmaker began to transform from campaign-trail target to a darling of President Donald Trump.

Earnings excluding some items were 30 cents a share, the company said on Thursday in a statement, mirroring the average projection of 20 analysts surveyed by Bloomberg. Profit on that basis fell 18% to $2.13bn, as Ford dialed back vehicle production in a slowing US market.

Ford’s financial well-being will be linked the next four years to the whims of a White House taking special interest in both where cars are built to how fuel efficient they’ll have to be.

Chief executive officer Mark Fields met twice this week with Trump, who’s also spoken regularly with executive chairperson Bill Ford. The president has praised the company for abandoning a $1.6bn Focus small-car factory in Mexico and adding 700 US jobs instead.

“The president is going to be very good for business and the economy,” Fields said in an interview with Bloomberg Television on Thursday. The US market has “plateaued” at a historically high level, he said. “We don’t have any plans to build any new plants, but clearly we want to continue to grow our business.”

Ford fell about 1.4% to $12.61 as of 14:52, before the start of regular trading. The shares dropped 14% last year.

Mexico plant

As a candidate and president-elect, Trump criticized a Mexico plant Ford pulled the plug on earlier this month, leading to a $200m charge in the fourth quarter. The Dearborn, Michigan-based company will still move production of Focus compacts south of the border to an existing factory, though it’s also plowing $700m into a plant south of Detroit.

The investment Ford announced in Flat Rock, Michigan, will prime the plant to build an all-electric sport utility vehicle and hybrid Mustang pony car by 2020, plus an autonomous vehicle for ride sharing or hailing services the following year.

The Flat Rock outlays illustrate the costly bet on electrification and self-driving vehicles that Ford has said will drag on profits this year, a one-year blip that should give way to higher net income in 2018. The company reiterated its guidance for 2017 results to come in “generally lower” than last year, driven by heavy investment.

Trump’s promises

Fields has said he’s hopeful Trump follows through on promises to cut corporate taxes and ease regulations by delaying or repealing federal rules mandating significantly higher fuel economy. Even if Trump makes good on his border-tax threat, the CEO has said he believes Ford could benefit because it makes so many vehicles in the US, including F-Series pickups, its most profitable model line.

Strong sales of sport utility vehicles and trucks last year propelled Ford to a $10.4bn annual pretax profit, down from $10.8bn in 2015 but still its second-best annual total.

“It’s important to realize that Ford and GM aren’t exactly out of the woods yet,” Brian Johnson, an analyst for Barclays, wrote in a January 25 note. “We are deep in the cycle - incentives are elevated, residuals are declining and rates are rising.”

Automotive sales in the fourth quarter declined to $36bn, topping analysts’ average estimate for $35.1bn. North American pretax profit in the fourth quarter dropped $73m to $1.96bn.

In Europe, Ford earned $166m before tax, about $35m better than the year-earlier quarter Asia-Pacific quarterly pretax profit decreased to $284m, down $160m Ford said it will pay out average profit-sharing checks of $9 000 to each of its 56 000 United Auto Workers-represented employees in the US.

After major introductions over the past two years of its F-150 and Super Duty trucks, Ford will have a relatively quiet year for new models, Whiston said. The most significant new products coming this year are aluminum-bodied versions of its big SUVs, the Expedition and Lincoln Navigator.

Rather than what’s headed for showrooms, the biggest influence looming over Ford’s future could be the man in the oval office.

“Nobody knows - that’s part of the problem,” said David Whiston, a Chicago-based auto analyst with Morningstar. “For now, the market is not worried. But the market will get very worried about auto stocks if Trump ends up doing a 35% tariff on Mexican imports.”

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