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News
Tire recall woes continue
August 22, 2000: 12:06 p.m. ET

Analysts lower Ford earnings estimates as tire makers rush to fill void
By Staff Writer Chris Isidore
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NEW YORK (CNNfn) - Tire makers were rushing Tuesday to fill the void caused by Firestone's recall of 6.5 million tires, while the analysts moved to cut the earning forecasts for the biggest customer of those tires - Ford Motor Co.

Firestone announced an airlift of tires Tuesday from its Japanese parent Bridgestone as part of the replacement effort. While it did not say how many tires would move in the airlift, it said at least 11 flights have been arranged, starting with a Thai Airlines flight Wednesday.

"We previously said we would complete this recall by spring.  But we are not satisfied with that.  With this assistance from our parent company, our own stepped-up production in the U.S. and the support of other tire manufacturers as well as Ford, we are confident that we can beat that schedule," said a statement from Masatoshi Ono, chief executive officer, Bridgestone/Firestone Inc.

graphicCompetitors ranging from leading tire maker Goodyear Tire & Rubber Co. (GT: Research, Estimates) to small independent tire maker Cooper Tire & Rubber Co. (CTB: Research, Estimates) have announced plans to increase production to try to fill the void. Ford says that it is working with Goodyear and French tire maker Michelin to supply the world's number two automaker with the tires necessary to meet demand.

Goodyear is in the process of increasing its production of its 15-inch P235/75R tires by 500 percent; the line can be used as replacements for the recalled Firestone tires, said Chuck Sinclair, a spokesman for the Akron, Ohio-based tire maker. It is increasing the supply of all its brand names, including Goodyear, Dunlop and Kelly-Springfield, and while it will take until late next month to increase the supply by that magnitude, Sinclair said production levels are already about twice of pre-recall levels.

Sinclair would not give specific production numbers. He said the increased production will go to the secondary market and to Ford dealerships to help replace the recalled tires. He said he was not aware of Goodyear winning any new contracts to be the original equipment provider on any models due to recall. While a fraction of the increased production will be handled in Latin American plants, most will come from five U.S. factories.

Cooper does not sell tires directly to automakers, and only serves the replacement tire market. But it said its share of the replacement tire market is in the mid-teens range.

Ford officials also admitted Monday that despite those negotiations, a shortage is likely to exist until at least the middle of next month. So it is shutting production at three plants making the Ford small pickups and sports/utility vehicles that use the recalled tires. Ford said the halt in production will allow 70,000 tires originally planned for new vehicles to go to replace recalled tires instead.

"We believe it is short-term shortage - which will improve significantly by the middle of September when the additional tire production begins to become available," said Martin Inglis, a Ford vice president, in comments Monday.

"Increased tire production is ramping up extremely fast - but we still have near term shortages."

The halt in production is what prompted many analysts to cut earnings estimates for Ford Tuesday, although some saw the carmaker earnings rebounding in the fourth quarter. Still, sales losses are expected due to the publicity about the tire recall and the shortage of vehicles, analysts predicted.

"My guess is most people view this as a tire issue than a Ford Explorer issue," said John Casesa, auto analyst with Merrill Lynch. "But there are a lot of good competitors to Ford Explorer out there on the market."

graphicCasesa lowered his earnings forecast for the third quarter to 50 cents a share from 56 cents a share Tuesday, although he raised his estimate for fourth-quarter profitability by 3 cents a share. Overall analysts surveyed by First Call now forecast that Ford will earn 51 cents a share in the third quarter, down from about 63 cents a share forecast when earlier estimates are adjustment for a recent stock split. Full-year earnings are forecast to come in at $3.69 a share, assuming the split was in effect for the full year.

Ford promised investors additional guidance on earnings in the coming days.

"The Firestone tire recall is clearly a fluid situation, with events unfolding at a rapid pace," said Joe Phillippi, analyst with PaineWebber, who predicted third-quarter earnings would fall by between 5 and 7 cents a share. "However, August (Explorer) sales remain strong, and we expect the slowdown will be temporary." He said the sell-off in Ford stock since the problem was revealed early this month made the shares attractive, and he reiterated his buy recommendation on Ford.

Ford also said Explorer sales are running at 97 percent of objective month-to-date, but have been weaker since last week and will likely be down for the month.

Casesa said that Ford will eventually have to back-off its support of Firestone's replacement tires and start using a different manufacturer's brands on its new S/UVs and light trucks. The lack of supply may be stopping it from making the change so far, he said.

"There's not enough tires from all the other makers. This is overwhelming the system," he said. "But eventually, it's going to be very difficult for Ford to keep buying the same number of tires from Firestone. So far they haven't changed their view that they're sticking with Firestone. But there's no doubt in my mind Ford will have to shift sourcing just to deal with customer perception."

Some leading Ford dealers said last week that they are having trouble selling new S/UVs or pick-up trucks with Firestone's 15-inch tires on them, even if though the tires on new vehicles are not affected by the recall. Many are substituting another brand of tire onto the vehicle to make the sale. So not sending the new vehicles to showrooms with Firestone tires may not be that great a loss to Ford.

  VIDEO  
graphic Watch Ford president and CEO, Jac Nasser address consumer concerns on ABC's "Monday Night Football"
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Jac Nasser, Ford's president and chief executive officer, appeared on a nationally televised ad during Monday Night Football to reassure current and potential Ford customers.

"You have my personal guarantee that all the resources of Ford Motor Company are directed to resolve this situation," Nasser said in the ad. "I want all of our owners to know that there are two things that we never take lightly. Your safety and your trust."

Halting production at the three plants, Edison Assembly, in Edison, N.J., Twin Cities Assembly in St. Paul, Minn., and St. Louis Assembly in Hazelwood, Mo., will cut 25,000 trucks from Ford's third-quarter production schedule, said Della DiPietro, a Ford spokeswoman.

The company said it would share the expense of the recall with Firestone, and that it recommends a lower inflation rate, 26 pounds per square inch, than Firestone, which recommends an inflation rate of 30 PSI.

Separately, Ford expects its August sales to fall by mid-single digits, with flat truck sales and a double-digit decline in cars.

Ford's Inglis said the company will be able to recoup most of the lost production of the 2001 Ford Ranger, about 10,000 units, over the remainder of the year. However, lost production of about 15,000 2001 model year Explorers, most of which carry the recalled tires as original equipment, will be pushed into next year.

Shares of Ford (F: Research, Estimates) gained 11/16 to 27-15/16 in trading Tuesday, while Goodyear climbed 9/16 to 24-3/4 and Cooper Tire rose 7/16 to 11-5/8. Meanwhile in overseas trading shares of Bridgestone gained 58 yen to 1,600 yen in Tokyo, while Michelin shares closed up 0.23 euro to 34.70 euros in Paris trading. Back to top

-- Click here to send e-mail to Chris Isidore

  RELATED STORIES

Firestone says it acted on Wilderness tires - Aug. 18, 2000

Firestone extends tire reimbursement program - Aug. 17, 2000

Ford dealers swapping non-recalled Firestone tires off new cars - Aug. 14, 2000

Firestone recalls 6.5 million SUV tires - Aug. 9, 2000

  RELATED SITES

Bridgestone/Firestone

NHTSA

Ford Motor Co.

Center for Auto Safety


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