Another Day, Another Loss: Auto Makers Fight for Profits

With the markets closed on Monday, speculation can only build over Ford’s (NYSE:F) third-quarter 2012 earnings, scheduled to be reported on Tuesday. The company recently raised its expected losses in Europe for the year to a staggering $1.5 billion, and the situation is not expected to improve any time soon. Last week, Ford announced that it would be closing three factories in Europe, a move that will cut 6,200 jobs, 13 percent of its workforce in the region.

Despite closing down 0.29 percent on October 26, analysts and investors seem to appreciate the fact that Ford is taking action. Closing plants and laying off workers is pretty much a last-ditch solution to the monumental challenges in the European market, but even before the crisis hit, the region was dealing with overcapacity. Now that car sales have declined for five years in a row, it is simply impossible to sustain production. Manufacturing must be scaled back and costs must be drastically slashed if the industry is going to survive.

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The closure of Ford’s plant in Genk, Belgium, is expected to cost as much as $1.1 billion, and save up to $730 million annually. Production from the facility will likely be moved to factories in southern Spain, where labor costs are cheaper. Union workers in Belgium blocked the entrance to the Genk plant, but it’s unclear that pressure will affect Ford’s decision. In order to turn its American operations around, the company slashed its salaried workforce by 30 percent, and cut plant capacity by 25 percent.

According to Bloomberg, Morgan Stanley analyst Adam Jonas estimates that Ford and General Motors (NYSE:GM) both face operating losses of over $500 million in the third quarter alone. GM is slated to release its third quarter earnings on Wednesday, the same day that the company is supposedly finalizing a parts-sharing agreement with Peugeot. The proposed arrangement would save the companies a combined $2 billion through 2015.

Perhaps following Ford’s example, GM will be shuttering a plant in Bochum, Germany, by 2016. For its part, Peugeot wants to close a plant with 8,000 workers near Paris, but labor-friendly laws could make such a move exceedingly difficult. Peugeot recently received some $9 billion in loan guarantees by the French government so that the company could maintain cheap credit lines with customers and dealerships.

While the European market looks bleak, Japanese auto makers are dealing with their own problems.

On Monday, Honda (NYSE:HMC) cut its fiscal-year 2013 forecast by 20 percent. The company lowered its net profit projection for the fiscal year from 470 billion yen ($5.9 billion) to 375 billion yen ($4.7 billion). This is due in part to the relative strength of the yen, but also due to Honda’s 41 percent sales decline in China sales in September due to a territory dispute between the two nations.

In a gaff similar to Google, Honda’s earnings  were prematurely posted to the company’s website, by accident. Shares of Honda slid 4.7 percent in Tokyo. The company did see sales growth — 20 percent from a year earlier — but missed expectations.

Similarly, Toyota (NYSE:TM) saw a 49 percent drop in sales in September due to the dispute. The company is due to release earnings on November 5. Exports for the company dropped as much as 14.4 percent year over year, while China output declined nearly 42 percent for the period, according to The Wall Street Journal.

Toyota slid 1.6 percent in Tokyo as the bleak outlook for Honda is sure to foreshadow Toyota’s struggles. The company’s road to recovery in China may be greater than simply overcoming political tensions. As reports point out, the company pushed cars into the market that cost more than competitors like GM. Toyota’s Yaris, for example, is too pricey for budget-conscious consumers, but not super appealing to those shopping at the higher-end of the market, selling just 1,250 per month on average. Meanwhile, GM’s Chevy Sail is sold 17,000 units last month in the wake of the protest, helping build critical brand loyalty.

Don’t Miss: Ford Leads The European Unemployment Parade.