A profit warning from Ford, the US motor company last night triggered a sell off on Wall Street with the Dow Jones Industrial Average falling 220 points to its lowest level since March.

Alan Mulally, chief executive of Ford, yesterday admitted that the high oil price and anxieties about the US economy will plunge the carmaker even further into the red and force it to cut production by a quarter.

His comments hit the Ford share price which fell 8 per cent to one of the stock’s lowest values at $5.81. Standard & Poor’s, the US credit rating agency later said it was likely that it would cut its outlook for Ford, Chrysler, and General Motors amid fears about cash flow for all three.

The S&P warning knocked 7 per cent off General Motors shares and 2 per cent from Chrysler’s. Anxieties about the outlook for the US car industry triggered a fall across the New York equity market as a whole, which closed down 220 points, or 2 per cent, to 11, 842, the lowest since March 17.

Moody’s, the rating agency, also said that it had changed its outlook on Ford, the car company’s loan financing arm, and Chrysler. Moody’s actions affect $27 billion of Ford’s debt, and $7 billion of Chrysler’s. At end-March, General Motors had $66.8 billion of unsecured long-term debt.

Traders took fright after Ford said that demand for the Ford F-150 pick up truck and sports utility vehicles, had fallen as motorists struggled to cope with the $4 a gallon price of petrol.

Ford warned investors that its financial performance for 2008 will be worse than 2007 when it reported a loss of $2.7 billion. It also said that it would struggle to break even on an operating basis in 2009. The Detroit company is planning to reduce costs by slashing production during the third quarter of the year by 50,000 vehicles to 475,000. That cut represents a 25 per cent fall in production compared with last year. As part of the cuts, Ford will delay the introduction of its new F-150 pick up truck by two months, which will see some workers made redundant from its Kansas plant.

The Ford 150 truck has been the company’s best-selling vehicle and its most profitable. The truck was designed during the Depression for families who could not afford a car and a farm truck, so the 150 was a version of the two, joined together.

Fears that the US is facing a severe recession, coupled with rising food prices and fuel prices have led to Ford cutting its forecast for total car sales in America. It had estimated that 15.4 million new cars would be sold this year, but yesterday it revised that forecast to between 14.7 million and 15.2 million.

The company said that it will try to boost the manufacture of smaller, more fuel-efficient cars such as the Ford Focus, the Mercury Mariner and the Ford Escape. Mr Mulally said: “For the long term, we are moving fast to introduce more small cars, crossovers and fuel-efficient powertrains — including more hybrids — and we will adjust our manufacturing facilities to match our updated product lineup.”

This week, Kirk Kerkorian, the billionaire activist shareholder, raised his stake in Ford to 6.49 per cent, from 5.5 per cent. He increased his stake after a meeting with Mr Mulally and Bill Ford, the chairman, about the board’s turnaround plan for the car maker.

When Tracinda, Mr Kerkorian’s investment vehicle, owned 9.9 per cent of General Motors in February 2006, Jerome York, Mr Kerkorian’s adviser and former Chrysler chief financial officer, was elected to the GM board. It is not known whether Mr Kerkorian is seeking a seat on the Ford board.

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