Ford, the world's number two carmaker, has reported a substantial fall in profits for the three months to June and lowered its expectations for the rest of the year.

Incentive schemes for US customers and weak sales were blamed for the drop in earnings, which nonetheless beat expectations on Wall Street.

Ford said it earned $417m in the second quarter, down 27% from $570m a year earlier.

Nearly all the profit, however, came from the group's finance arm, Ford Credit, which saw a 21% jump in profits.

Its car sales in the US fell 2.8% while the average amount Ford spends to entice reluctant buyers rose nearly 50% from a year earlier to $3,400 per vehicle.

A number of carmakers, including the world's largest group, General Motors, are offering buyers big discounts that are buoying demand in the face of foreign competition, but eroding profits.

European woes

Ford's European operations lost $525m in the period, a performance the company described as "unsatisfactory".

Ford said it was now lowering its forecasts for European sales this year, from 17m vehicles to 16.3m.

The group nonetheless insisted it was meeting its own internal 'revitalisation' targets, after losing $6.4bn in the past two years.

It cut costs in the three month period by $1.3bn, and said it had a savings target of $2.5bn for 2003 as a whole.

"Once again, we've proven that we're committed to our financial milestones,'' said vice chairman and chief financial officer Allan Gilmour.