Ford Motor Company deserves a little blog time today. Ford surprised just about everyone with a third quarter profit of a billion dollars. Most analysts were predicting a loss. This doesn’t mean Ford has solved all of its problems, but the company’s turnaround is impressive.
After closing more than 10 plants and slashing 45% of its workforce since 2006 in its long-ailing North American division, the Dearborn-based automaker today reported net income of $997 million, or 29 cents per share, compared with a net loss of $161 million, or 7 cents per share, a year ago.
For the first nine months of the year, Ford has now posted a $1.8-billion profit. That’s a $10.6-billion improvement from the same period a year ago.
Even the company’s long-struggling North American division reported a pretax operating profit of $357 million — its first profitable quarter since the first quarter of 2005.
I just had a chat with our New York reporter Alisa Roth. She covers the auto industry for us, and she’s working up a story on Ford for tonight’s Marketplace. Alisa attributes most of Ford’s success to “right-sizing”. Ford’s old business model was to build far more cars than it could sell. But all the cutting mentioned above has gotten Ford to a point where its inventory more closely matches its sales.
Because it doesn’t have tons of extra cars, Ford doesn’t have to rely on deep discounts which cut into margins. So, the company’s pricing structure is better. More from Bloomberg:
“Ford is a company that’s well into a turnaround,” said Bernie McGinn, president of McGinn Investment Management of Alexandria, Virginia, which owns about 320,000 Ford shares. “They did it by themselves and didn’t take government money. That gives people a good gut feeling and they’re being rewarded for that.”
But before we give Ford the Nobel Peace Prize, there are some issues. For one thing, CEO Alan Mulally chose to skip over 2010 and say that Ford would be solidly profitable in 2011. Why did he ignore 2010? Well, he’s not sure what the economy will offer up. Ford is profitable right now with car sales at their current levels. To be sure, those levels were boosted by cash-for-clunkers. Who knows what sales will be like next year?
The second issue for Ford is debt. It still has $23 billion in long-term debt. Alisa says that number probably needs to come down at least another $3 billion. Otherwise, Ford’s access to credit is tricky and puts it at a disadvantage with GM and Chrysler. Those two don’t have much debt because it was wiped out in their bankruptcies.
And finally, from Businessweek:
Of the company’s $1.1 billion pretax profit, $677 million came from the finance company. Relying heavily on finance profits has long been a crutch of U.S. automakers since profits on their cars were hard to come by.
Just being in the black in today’s recession is a big achievement, of course.
Even more so, considering the taxpayers didn’t have to get involved.
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