AUTOMOBILE INDUSTRY Concerns still exist although GM, Ford exceed forecasts

Analysts are disappointed by lack of profits from car building.
DETROIT (AP) -- Automakers are likely to continue using cut-rate financing promotions to lure customers in the months ahead, even as their borrowing costs are projected to rise. That could cut into overall profits and place more pressure on General Motors Corp., Ford Motor Co. and other manufacturers to do a better job of making money off cars and trucks themselves.
Ford said last week its financing arm accounted for three-quarters of the $1.2 billion in profits it earned in the second quarter, a near tripling of the year-earlier results that easily beat Wall Street forecasts.
Ford's larger crosstown rival, GM, also reported a $1 billion-plus quarter, and like Ford, it was financial services -- not automaking -- that drove earnings.
The relative lack of profits from car-building at Ford was disappointing, said Goldman Sachs analyst Gary Lapidus, whose report about the earnings was headlined "Attractive paint job, but underneath a bit of a clunker."
What execs say
Executives at GM and Ford, the nation's two biggest automakers, say they're hopeful an infusion of new vehicles between now and the end of the year will lift automotive sales and improve that side of the business. But questions remain for many investors and industry observers, particularly as the nation prepares for what's expected to be a gradual rise in the short-term interest rates controlled by the Federal Reserve.
"Looking ahead, the challenge seems to be gauging how far and how fast income at the finance company will decline, and how much of that deficit the auto company will be able to make up," Credit Suisse First Boston analyst Chris Ceraso said in a report on Ford.
GM's shares fell 41 cents to $42.52 in afternoon trading Monday and Ford shares dropped 2 cents to $14.65. Both are less than half of their value of April 2000.
GM, Ford and industry analysts say it's unclear how higher borrowing costs would affect profits because GMAC and Ford Credit have diverse operations that also deal in areas such as insurance and home financing.
For example, GMAC's insurance group reported earnings of $75 million in the April-June period, up from $23 million a year ago, on continued growth in underwriting income.
View by analysts
Analysts say it's a certainty GM and Ford will continue to offer expensive consumer incentives for the coming months and beyond, including low- and no-interest financing.
Slower-than-anticipated June sales at Ford and GM contributed to already-inflated vehicle inventories, and cash rebates and financing deals are seen as a primary mechanism for clearing out the excess, higher rates or not.
In a report, Merrill Lynch analyst John Casesa said "cheap and available credit has become the key competitive tool" for Ford and GM in the United States.
"To the extent that rates rise only slowly, enabling this tool to remain effective, Ford Credit results are likely to remain strong," Casesa said.
On the automotive side at Ford and GM, the tone has shifted from largely optimistic at the start of the year -- because of the improving economy and a host of new vehicles -- to somewhat cautious.
Still, no one is panicking. Ford, in fact, raised it full-year earnings outlook last week. But after sales tanked in June, the pressure is on Detroit automakers to finish the summer with a bang.