The Revival of the US Auto Industry? Not so Fast

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Ford Motor Company is planning to announce earnings tomorrow. The big three; General Motors, Chrysler and Ford have seen a major comeback since being on the verge of default in late 2008 and early 2009. In regards to the former two companies, the Federal Government had to lend money to prevent this from happening. Ford’s share price dropped to a dollar, but analysts widely praised CEO Alan Mulally for rescuing the company and for a wide rally in its share price. The company also lost $30.1 billion from 2006-2008

Analysts expect Ford to announce its best earnings in 20 years, with a  net income over $20. However the numbers are a bit decieving. Ford will produce $20 billion of that income due to $14 billion from contra-account a  against deferred tax benefits. This is mostly a one time accounting item, that has no impact on future earnings. while the headlines will focus on the headline number, it is important for analysts to realize that it is not as good as it will appear.

Analysts expect Ford profits to decline for the forth quarter, year over year. Analysts expect fourth quarter earnings of $0.30 a share, down a year ago from $0.26 a share.  This is mostly due to a weakening of demanding from a slowing Asian economy and a Europe in crisis. However, analyst expect sales to be strong in North America, especially as the average age of a car has reached a record 10.8 years. As cars age, even cash strapped customers will be forced to replace their vehicles.

While the state of the auto industry is much better then it was several years ago, the headline numbers will likely be very deceiving

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