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Apr 25, 2018

Ford says it's dropping unpopular sedans to boost margin, beats in Q1

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DETROIT, April 25 - Ford Motor Co (F.N) on Wednesday outlined a plan to cut costs and boost profit margins at a faster pace than previously announced, which includes dropping traditional sedan models in North America that have become increasingly unpopular with consumers.

The No. 2 U.S. automaker said it now plans to cut US$25.5 billion in costs by 2022, up from US$14 billion in cuts it announced last fall.

Ford Chief Executive Jim Hackett told investors the company is undergoing "a profound refocus" of its operations and may exit unprofitable businesses.

"We'll restructure as necessary, and we'll be decisive," he said. "We're going to feed the healthy part of our business," and dispose of marginal operations, Hackett added.

Ford said it expects pretax profit margins of 8 per cent globally and 10 per cent in North America by 2020, ahead of a previous target of 2022.

The company's stock was up 2.6 per cent at US$11.40 in after-hours trading.

Responding to a shift in consumer demand to SUVs and pickup trucks, Ford said it planned to trim its North American car portfolio to just two models: the sporty Mustang, which debuted 50 years ago this month, and a new compact crossover called Focus Active starting in 2019.

Ford "will not invest in next generations of traditional Ford sedans for North America," including the midsize Fusion and full-size Taurus, the company said.

The automaker has been under pressure from Wall Street investors to improve its product lineup and lift flagging profit margins. In 2017, the company's pretax profit fell to US$8.4 billion from US$10.3 billion.

In March, Ford executives unveiled ambitious plans to shift the struggling automaker's product portfolio from passenger cars to SUVs, add more hybrid and pure electric vehicles, and reduce development and manufacturing costs - aimed at boosting profits and the automaker's share price.

Speaking to reporters on Wednesday as the company reported first-quarter results, Chief Financial Officer Bob Shanks said "we have looked at every single part of the business ... We are driven to turn this business around."

Ford reported a better-than-expected first-quarter profit, with a 7 per cent increase in revenue and a lower effective tax rate offsetting a jump in costs, especially higher commodity prices.

The company reported a first-quarter net profit of US$1.74 billion, or 43 cents U.S. per share, up from US$1.6 billion, or 40 cents U.S. per share, a year earlier. Analysts had on average expected earnings per share of 41 U.S. cents.

Despite the higher profit, Ford's adjusted pretax profit margin fell to 5.2 per cent from 6.4 per cent in the same quarter in 2017.

CFO Shanks said the company expected that commodity costs would represent a US$1.5 billion "headwind" in 2018, US$500 million of which came in the first quarter.

The lion's share of the automaker's quarterly profit was driven by high-margin pickup trucks and SUVs in North America. Europe was the only other region to turn a profit for Ford.

The company's loss in its Asia Pacific region was driven by slumping sales in China, where Ford has just begun to introduce new models.

Shanks said the Lincoln brand still is losing money in China, where it launched in 2015, but now plans to begin local production there in 2020.

Joe Hinrichs, president of global operations, said Ford plans to build a new product its Hermosillo plant in Mexico when it quits production of the Fusion sedan, and will also build a new battery electric vehicle in Mexico.