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Will Rising Discounts Crush Ford's Profits?

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Automotive News

That's why prices will fall. And that's why Ford is likely to feel pressure to boost incentives further, squeezing its profits in North America.

Here's why that's a big deal.

Why those rising incentives could hurt Ford's overall profits

Ford's sales in places like China have been booming, but Ford has been reinvesting much of the money it makes in Asia in an aggressive expansion effort . The company currently has five factories under construction in China and India.

Source: Ford Motor Company

Ford Motor Company

As you can see, North America was a profit powerhouse, with a whopping (by auto industry standards) operating profit margin of 11.6%. Ford has warned that its margins will fall into the (still good) 8%-9% range as the year goes on, because of the costs of launching a series of new models.

Generally speaking, new models require fewer discounts to sell well. The new models that Ford is launching could help the company hold the line on discounts.

But if Ford has to keep boosting incentives to keep pace with competitors (and the used-car market), its margins could be hit harder. Stay tuned.

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The article Will Rising Discounts Crush Ford's Profits? originally appeared on Fool.com.

John Rosevear owns shares of Ford. The Motley Fool recommends Ford. The Motley Fool owns shares of Ford. Try any of our Foolish newsletter services free for 30 days . We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy .

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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