Ford is attempting to turn itself around

Ford said on Friday that this year's profits would miss its own projections and abandoned its target for 2006.

Investors were shocked by the news, saying that despite the problems dogging the motor industry, Ford had appeared to be reviving.

The company's shares closed 5% lower at $10.44 (�5.52) in New York, earlier hitting their lowest level for a year.

The spread on Ford bonds, an indicator of risk, widened by as much as 150 basis points.

Multiple impact

Ford, the second-largest US automaker, said on Friday that higher costs meant that 2005 profit would be at least 14% lower than it had earlier forecast.

The company now expects full-year earnings of between $1.25 and $1.50 a share, compared with its earlier forecast of $1.75 to $1.95 per share.

It also added that pre-tax profit next year would not meet its target of $7bn (�3.7bn).

Ford, which owns brands including Land Rover, Jaguar, Volvo and Aston Martin, is not the only US carmaker facing problems.

Ford was supposedly a recovery story Stock market trader See Ford's share price

Last month General Motors said that its first-quarter profits would also miss targets and are likely to be the weakest in over a decade.

"The industry dynamics that Ford and GM face are similar: high material costs, high legacy costs, declining market share, lacklustre product cycle success," said John Kollar, an analyst at HSBC Securities.

US carmakers have been hit by a surge in the price of raw steel and crude oil, a tumble in the value of the US dollar and increased competition from Asian rivals such as Toyota and Honda.

In the US, Ford has seen its share of the domestic auto market shrink by 5.2% this year.

The company is in the midst of a turnaround plan that was launched back in 2002.

"It's a surprise to the market. While GM has had a long run-up to a negative outlook, Ford was supposedly a recovery story," a trader told the Reuters news agency.

Ford's announcement prompted rating agency Standard & Poor's to cut its outlook on the company to "negative". It rates Ford's bonds as a BBB- risk, one level above junk.