Ford Motor Company (NYSE: F) said Friday profit fell 20.5 percent, missing analysts' predictions, on lower European sales, plunging South American profit and a drop in Ford Credit profit. But the No. 2 U.S. automaker also cut its debt sharply.

Net income for the first quarter was $1.4 billion, or 35 cents per share, down from $2.55 billion, or 61 cents per share, a year earlier on higher tax expenses and special charges, Ford said. Excluding items, Ford reported a profit of 39 cents per share compared with analysts' expectations of 35 cents per share, according to a survey by Thomson Reuters.

Revenue fell to $32.4 billion from $33.1 billion last year.

The increase in non-cash tax expense explains about half of the decrease in net income, with the balance reflecting lower operating results and increased special charges, primarily buyouts of hourly workers in the U.S. as part of the 2011 UAW agreement, the company said in a statement.

At the end of the quarter, Ford had total automotive debt of $13.7 billion, a decrease of 21 percent from the previous year. 

North American car sales rose 16 percent for an operating profit in the division of $2.1 billion, and the highest quarterly profit for the region since 2000. The operating margin for the region also improved to 11.5 percent from 10.3 percent the year before.

Strong North American numbers stemmed from consumers' shift to popular smaller cars like the Ford Focus amid rising gasoline prices. CEO Alan Mulally began revamping the company's product lineup when he came aboard in 2006, focusing on fuel-efficient models like the Fiesta, which can get up to 40 miles per gallon in highway driving.

Ford has done a very good job, marketing wise, to position itself as the fuel-economy leader among the Big Three, Barclays Capital analyst Brian Johnson told Bloomberg News.  But they're facing headwinds in Europe, South America and Asia-Pacific.

While Ford still managed to report an operating profit of $54 million in South America, profits for the region plummeted almost 75 percent from $210 million the year before. Lost profits in South America stemmed from more expensive parts, higher wages and unfavorable exchange rates.

Ford also struggled in Europe, where it reported a loss of $149 million compared with a profit of $293 million the year before as sales fell by 60,000 vehicles. Revenue in the region declined almost 21 percent to $7.2 billion.

Ford Chief Financial Officer Lewis Booth warned in January that Europe is challenging and will likely remain so for some time as the financial crisis has made potential buyers reluctant to make big purchases.

Losses weren't limited to South America and Europe, though, and Ford reported an operating loss of $95 million in its Asia-Pacific-Africa division, compared with a profit of $33 million the year before. Increased investment costs, primarily in China, and a slower-than-expected launch of the Ranger pickup truck model from factories in Thailand and South Africa caused the bulk of the decline. Revenue for the region rose 8.7 percent to $2.3 billion.

Ford's Financial Services division lost ground as well, with revenue falling 10.5 percent to $1.9 billion, but it still reported a profit of $456 million, down roughly 35 percent from $706 million. Ford Motor Credit Co. posted a lower profit of $452 million, 36.7 percent down from the year before.

Ford revised its guidance from the fourth quarter of 2011, and now expects U.S. full year industry sales volume to rise to between 14.5 million and 15 million vehicles. The company expects full year U.S. market share to be lower than 2011's level of 16.5 percent and European market share to be roughly equal to 2011's 8.3 percent.

Total pre-tax operating profit is expected to be equal to 2011, with profits rising in the second half of this year as new vehicles launch. Ford's 2011 operating profits were $2.3 billion.

North American profits are expected to rise significantly and will be fundamental to the company achieving similar profits to 2011, as the company is expecting a full year loss of $500 million to $600 million in Europe. Ford's South American and Asian divisions are expected to be profitable at year's end.

The automotive industry is economically sensitive and has historically demonstrated meaningful cyclicality as changes in underlying conditions improve or deteriorate. Fixed costs are relatively high for the industry and as a result the impact to financial performance can be magnified, Guggenheim Securities said in a report earlier this month.

Ford received a boost earlier this month when Fitch restored its credit rating to investment grade, which is important if the automaker is to borrow at lower interest rates. Fitch said in a statement its decision was based on Ford's significantly improved financial performance, balance sheet repair, and product portfolio improvement that have taken place over the past several years. 

Ford continues to face pressure in the U.S., where it has been losing market share to rivals like Chrysler and Kia. The company has said it will likely continue losing market share because it can't produce enough vehicles to meet demand, The Associated Press said.

Ford had its strongest March sales in the U.S. in five years, with 223,418 cars sold, a 5 percent increase from a year ago. For the quarter as a whole, Ford sales climbed 6 percent, while sales for the entire U.S. automotive sector rose 10 percent, according to David Cutting, senior manager of North American forecasting for J.D. Power & Associates' LMC Automotive division.

Ford has been struggling in China to catch up with rival General Motors Company (NYSE: GM), which sells nearly five times more vehicles there than Ford, according to a report this month by stock analysis firm Trefis in Boston.

Ford last year saw Chinese sales record growth in China with sales of 7 percent -- even though overall auto sales only grew 2.5 percent. By mid-first quarter, however, Ford's passenger car sales in China declined 17.3 percent to 27,374 vehicles, while commercial vehicle sales rose 0.5 percent to 22,005, Trefis said.

Ford has been making moves to reverse its fortunes in China and recently announced a $600 million investment in its Chongqing plant -- in addition to plans to open four new factories, Trefis said. Ford plans to introduce 15 cars into the Chinese market by 2015, and its joint venture Changan Ford Mazda Automobile will expand volume to 950,000 vehicles by 2014.

Ford Motor Company (NYSE: F) shares fell 18 cents to $11.70 in afternoon trading.