GM Has a Hard Sell - Even to Itself Page 2

July 25, 2005

The target price for Nissan, says the brokerage, is Y1290 to 1400, up from Wednesday's close of Y1152. Honda's target is Y6200, up from Wednesday's close of Y5700. Toyota was downgraded by Merrill largely because its shares are already fairly valued.

Merrill analyst Tatsuo Yoshida noted that Nissan is still hammering at production costs and turning out compelling designs, while its management shift to four groups under CEO Carlos Ghosn should make the company less dependent on its charismatic leader who is also assuming the post as head of Renault, which owns a controlling interest in Nissan.

The analyst said Honda's success with the Ridgeline pickup in North America, as well as the benefits of the Odyssey minivan overhaul, and growth in China will pump profitability.

Honda said Wednesday that it expected sales to rise at least 16 percent by the year ending in March, 2008, with unit sales rising to four million vehicles. Honda will have sales of more than Y10 trillion, or $89 billion, in fiscal 2007, said the president, Takeo Fukui. Last fiscal year, the company had sales of Y8.65 trillion. Honda may have to rely more on the United States, where it earns up to 64 percent of annual operating profit, as sales growth slows in Japan, the world's second-largest vehicle market.

Meantime, Yoshida was very pessimistic about Subaru parent Fuji heavy Industries, downgrading the company's shares from neutral to "sell."

The analyst noted Fuji's "weak cost structure and the new Legacy losing momentum." He also said the company "cannot be too optimistic" about the prospects of the B9 Tribeca SUV, which recently launched in the U.S.

Fuji Heavy Industries shares fell 0.6 pct or 3 yen to 464 after the company said its worldwide production in May fell 12.5 pct from a year earlier to 43,058.-Jim Burt

Ford Posts Q2 Profit

Ford Motor Co posted a profit for the second quarter but its financial report for the period exposed the weakness of its automotive business in North America.

Ford reported earning $936 million or 47 cents per share for the
second quarter on sales of $44.5 billion in the second quarter,
compared with the $1.2 billion or 57 cents per share the company earned on sales of $42.9 billion the company earned in the same quarter a year ago.

But on a pre-tax basis, the automaker lost $245 million worldwide, down $342 million from a $97 million profit during the same period a year ago.

Ford's North American automotive operations also reported a pre-tax loss of $907 million, down $1.4 billion from a $454 million pre-tax profit a year ago. Higher costs and lower volumes contributed to the decline. Sales were $19.9 billion, down $568 million from the same period a year ago.

"Despite profitability in most regions, our global automotive results were disappointing, reflecting the fiercely competitive environment in which we continue to operate, particularly in North America," said William Clay Ford Jr. in a statement.

"We are responding to this tougher operating environment through actions aimed at improving our cost structure, optimizing our global footprint, strengthening our balance sheet and making essential investments for the future. We'll continue to share our plans as the year progresses," the Ford CEO said.

Don Leclair, Ford chief executive officer, said overcapacity remains an issue throughout the industry, but refused to say if Ford was prepared to close additional plants. "We realize we have excess capacity," he admitted.

Leclair also said Ford has been hurt by rising steel and oil prices, which has made life extremely difficult for suppliers. "The supply base is very fragile," he said.

The turmoil among suppliers also blunted the company's cost-cutting drive, which the company hopes to get back on track during the second half of the year. Leclair also acknowledged that Ford had been hurt by General Motors Corp.'s successful employee-discounts-for all promotion. Ford's own offers of employee discounts have boosted sales this month and reduced inventories of unsold vehicles, which will help sales and profitability in the future.

In addition, the company's financial services sector reported a pre-tax profit of $1.3 billion. The profit was down $229 million from the second quarter of 2004 due to rising interest rates.

Leclair said despite the setback in the company's North American automotive operations the company did make several moves in the second quarter that will yield significant improvements in the future such as the restructuring of the automaker's relationship with Visteon.

In addition, Ford also has now completed the consolidation of its Jaguar unit in the United Kingdom and is bringing several new products to market in the United States, he said.

Ford has launched the new 2006 Mercury Mariner Hybrid and will introduce the new Ford Fusion, Mercury Milan and Lincoln Zephyr this coming fall. -Joe Szczesny

CAW, GM Open Talks

General Motors Corp. isn't looking for concessions but it doesn't want any increase in labor costs in any new contract with the Canadian Auto Workers union. Allen Green, GM of Canada vice president of human resources, said the company's labor costs increased 5.7 percent each year under its last three-year CAW contract, and it can't afford those kinds of increases now. "We have to control our labor costs," said Green.

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