Ford Motor Co. (F - Free Report) expects the near-breakeven results from South America in 2013 to continue in 2014 due to economic problems and uncertainties in Venezuela and Argentina and the relative weakness in Brazilian economy. The automaker expects higher profitability in Brazil and Argentina, which will be offset by poor results from Venezuela.
However, Ford accepts that the volatile situation in Venezuela and the increasing risk in Argentina may result in losses from South America in 2014 despite the outlook of breakeven results. Both countries are suffering from high inflation and weakening currencies.
Venezuela witnessed a 50% surge in consumer prices, while Argentina recorded 25% inflation in 2013, according to Reuters. The currency control measures by the Argentine government have resulted in a shortage of U.S. dollars in the nation. As a result, the currency is changing hands in the black market at double the official exchange rate.
However, to control the falling Argentine peso and the rising consumer prices, the Argentine government is planning to relax currency controls. Meanwhile, the Venezuelan president has already relaxed currency controls in the nation.
Ford was forced to reduce production in Venezuela last year due to shortage of foreign currency, which prevented the automaker from purchasing auto parts required for manufacturing. This contributed to decline in wholesale volumes and revenues from South America in the fourth quarter of 2013. Pre-tax loss from South America during the quarter amounted to $126 million.
Total auto sales in Venezuela in 2013 were merely 100,000 units, while in Argentina sales volume amounted to 900,000 units. Sales in Argentina were relatively less affected as consumers wanted to purchase durable goods to store value. This increased automobile sales.
Other automakers are also concerned about the uncertain situation in these two countries. General Motors Company (GM - Free Report) expects financial risk, despite recording profits from South America in 2013.
Ford currently carries a Zacks Rank #5 (Strong Sell). Some better-ranked automobile stocks worth considering are Tesla Motors, Inc. (TSLA - Free Report) and Dongfeng Motor Group Company Limited . Tesla carries a Zacks Rank #1 (Strong Buy), while Dongfeng carries a Zacks Rank #2 (Buy).