Will Rising Discounts Crush Ford's Profits?


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.

Warren Buffett's worst automotive nightmare (Hint: It's not Tesla Motors!)

A major technological shift is happening in the automotive industry. Most people are skeptical about its impact. Warren Buffett isn't one of them. He recently called it a "real threat" to one of his favorite businesses. An executive at Ford called the technology "fantastic." The beauty for investors is that there is an easy way to ride this megatrend. Click here to access our exclusive report on this stock.

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

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 .

Copyright © 1995 - 2014 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy .

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.

In This Story


Other Topics


Latest Markets Videos

    The Motley Fool

    Founded in 1993 in Alexandria, VA., by brothers David and Tom Gardner, The Motley Fool is a multimedia financial-services company dedicated to building the world's greatest investment community. Reaching millions of people each month through its website, books, newspaper column, radio show, television appearances, and subscription newsletter services, The Motley Fool champions shareholder values and advocates tirelessly for the individual investor. The company's name was taken from Shakespeare, whose wise fools both instructed and amused, and could speak the truth to the king -- without getting their heads lopped off.

    Learn More