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Rising aluminum costs cut into Ford's profit

When Ford reports fourth-quarter results on Wednesday afternoon, it is expected to fret that rising metals costs have cut into profits, even as rivals say they have the problem under control. Aluminum prices have risen 20 percent in the last year and nearly 11 percent since Dec. 11. Steel prices have risen just over 9 percent in the last year. Ford uses more aluminum in its vehicles than its rivals. Aluminum is lighter but far more expensive than steel, closing at $2,229 per tonne on Tuesday. U.S. steel futures closed at $677 per ton (0.91 metric tonnes). Republican U.S. President Donald Trump's administration is weighing whether to impose tariffs on imported steel and aluminum, which could push prices even higher. Ford gave a disappointing earnings estimate for 2017 and 2018 last week, saying the higher costs for steel, aluminum and other metals, as well as currency volatility, could cost the company $1.6 billion in 2018. Ford shares took a dive after the announcement. Ford Chief Financial Officer Bob Shanks told analysts at a conference in Detroit last week that while the company benefited from low commodity prices in 2016, rising steel prices were now the main cause of higher costs, followed by aluminum. Shanks said the automaker at times relies on foreign currencies as a "natural hedge" for some commodities but those are now going in the opposite direction, so they are not working. A Ford spokesman added that the automaker also uses a mix of contracts, hedges and indexed buying. Industry analysts point to the spike in aluminum versus steel prices as a plausible reason for Ford's problems, especially since it uses far more of the expensive metal than other major automakers. "When you look at Ford in the context of the other automakers, aluminum drives a lot of their volume and I think that is the cause" of their rising costs, said Jeff Schuster, senior vice president of forecasting at auto consultancy LMC Automotive. Other major automakers say rising commodity costs are not much of a problem. At last week's Detroit auto show, Fiat Chrysler Automobiles NV's Chief Executive Officer Sergio Marchionne reiterated its earnings guidance for 2018 and held forth on a number of topics, but did not mention metals prices. General Motors Co gave a well-received profit outlook last week and did not mention the subject. "We view changes in raw material costs as something that is manageable," a GM spokesman said in an email.

The UK votes for Brexit and it will impact automakers

It's the first morning after the United Kingdom voted for what's become known as Brexit – that is, to leave the European Union and its tariff-free internal market. Now begins a two-year process in which the UK will have to negotiate with the rest of the EU trading bloc, which is its largest export market, about many things. One of them may be tariffs, and that could severely impact any automaker that builds cars in the UK. This doesn't just mean companies that you think of as British, like Mini and Jaguar. Both of those automakers are owned by foreign companies, incidentally. Mini and Rolls-Royce are owned by BMW, Jaguar and Land Rover by Tata Motors of India, and Bentley by the VW Group. Many other automakers produce cars in the UK for sale within that country and also export to the EU. Tariffs could damage the profits of each of these companies, and perhaps cause them to shift manufacturing out of the UK, significantly damaging the country's resurgent manufacturing industry. Autonews Europe dug up some interesting numbers on that last point. Nissan, the country's second-largest auto producer, builds 475k or so cars in the UK but the vast majority are sent abroad. Toyota built 190k cars last year in Britain, of which 75 percent went to the EU and just 10 percent were sold in the country. Investors are skittish at the news. The value of the pound sterling has plummeted by 8 percent as of this writing, at one point yesterday reaching levels not seen since 1985. Shares at Tata Motors, which counts Jaguar and Land Rover as bright jewels in its portfolio, were off by nearly 12 percent according to Autonews Europe. So what happens next? No one's terribly sure, although the feeling seems to be that the jilted EU will impost tariffs of up to 10 percent on UK exports. It's likely that the UK will reciprocate, and thus it'll be more expensive to buy a European-made car in the UK. Both situations will likely negatively affect the country, as both production of new cars and sales to UK consumers will both fall. Evercore Automotive Research figures the combined damage will be roughly $9b in lost profits to automakers, and an as-of-yet unquantified impact on auto production jobs. Perhaps the EU's leaders in Brussels will be in a better mood in two years, and the process won't devolve into a trade war. In the immediate wake of the Brexit vote, though, the mood is grim, the EU leadership is angry, and investors are spooked.

VW won't let emissions scandal keep it from racing

The Volkswagen Group may have its hands full dealing with the diesel emissions scandal. But that doesn't mean it will be curbing its considerable racing programs. At least not in any significant way. This according to Matthias Muller, who recently moved up from his previous position as Porsche CEO to preside over the entire group. Speaking with Autosport at the World Endurance Championship finale in Bahrain this past weekend, Muller emphasized the importance of racing to the company. "The motorsports programs are not in danger of being dropped or significantly reduced because motorsports is very important for the group and the brands," said Muller. "Basically we do not question our motorsport efforts." Of all the brands under the group's umbrella, several have prominent, top-level factory works racing programs, and others support customer racing teams. The Volkswagen brand has emerged as the dominant force in the World Rally Championship, securing both titles over the past three years. Both Porsche and Audi compete in the top tier at Le Mans and in the World Endurance Championship, trading places in the winner's circle. Audi also competes in DTM, and alongside Lamborghini, Bentley, and Porsche, and also offers GT3 and GTE racing cars to private customers. Lamborghini, Porsche, Audi, and Seat (once the leader in touring cars) all run their own spec racing series as well. Skoda continues to compete in lower-level rallying, leaving only Bugatti to draw on its prominent pre-war grand prix racing history. To hear Muller tell it, those racing programs – or at least the top-levels ones among them – aren't going away anytime soon. But there may still be some tweaks here and there, and we shouldn't expect any new programs to be launched in the near future. Porsche, for example, is anticipated to wind down its factory involvement in GT racing, after winning both the drivers' and manufacturers' titles in the WEC GTE Pro class this year in addition to its LMP1 victories. Instead it will focus on preparing new racing versions of the 911 for client racing teams. The auto giant was also reportedly close to branching out into Formula One in partnership with Red Bull. But after negotiations were interrupted by emergence of the diesel emissions scandal, that deal fell apart. It remains unknown which brand might have been represented in the F1 engine-supply program.