Ford Posts Unexpected Profit
Ford Motor Co. posted Monday better-than-expected financial results for the third quarter. The company also revised its projection for 2011, from "breakeven" to "solidly profitable."
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From NPR News, this is ALL THINGS CONSIDERED. I'm Michele Norris.
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And I'm Robert Siegel.
Today, Ford Motor Company posted stronger-than-expected earnings for the third quarter. It also revised its 2011 forecast from breakeven to solidly profitable. And Ford announced that it will try to raise about $3 billion by issuing new stock and securities that can be converted to stock. The automaker says momentum is on its side, even as it shoulders a lot of debt.
Michigan Radio's Tracy Samilton reports.
TRACY SAMILTON: Ford has been increasing its market share in Europe and the U.S. bit by bit, month by month, in one of the worst economies in auto history. In the U.S., its third quarter increase was 2.2 percentage points.
Kate Knight(ph) is part of that happy statistic. For eight years, she drove her family around Northville, Michigan, in a Honda Odyssey.
Ms. KATE KNIGHT: It was the perfect car for us at the time. We needed a minivan. We have three children.
SAMILTON: But the Odyssey wasn't what you'd call glamorous or trendy, especially by the time it was ready to be put out to pasture. By then, the Ford Flex was turning Knight's head. The styling was fresh, even American. Knight said she always felt she should buy from a domestic automaker. After all, as Chrysler, GM and Ford go, so goes the economy in Southeast Michigan.
Ms. KNIGHT: But we're not in a position to make a pity purchase when we're buying a new car for our family, so it has to be the right vehicle for us. And it definitely was. It's surpassed our expectations.
SAMILTON: Other Ford vehicles are selling well, too, including the Focus and the Fusion. But Ford didn't just improve products and revenue, it paid close attention to the other side of the balance sheet: closing plants and thinning the ranks of employees with early retirement offers. Ford went from burning through $1 billion or more a month in cash reserves last year to adding nearly $3 billion to reserves in the third quarter this year.
Laurie Harbour is president of Harbour Results.
Ms. LAURIE HARBOUR (President, Harbour Results, Inc.): They've done a significant amount of cost cutting within the company, some of it driven through purchasing and suppliers, but a great deal of it done at the product engineering level and at the manufacturing level. That cost savings is now beginning to show to their bottom line.
SAMILTON: Of course, Ford had to cut its costs sharply to compete with GM and Chrysler. They got rid of huge amounts of debt by declaring bankruptcy. Ford didn't, so it still has $21 billion of long-term debt to repay.
Mr. ALAN MULALLY (CEO, Ford Motor Company): We will pay back our debt.
SAMILTON: That's Ford CEO Alan Mulally. He's convinced that Ford will gain more market share and make enough money to both invest in new cars and trucks and pay off loans.
Mr. MULALLY: We're positioning ourselves to be able to accelerate the improvement of that balance sheet, which will negate any competitive disadvantage we have on interest today.
SAMILTON: But it's not the debt that worries analyst John Wolkonowicz so much, as looming labor issues. He's with IHS Global Insight. UAW members soundly rejected a deal not to strike Ford in 2011 when the current contract is up. That no-strike provision is something else GM and Chrysler got in bankruptcy court. Wolkonwicz says this could be a huge problem for Ford.
Mr. JOHN WOLKONOWICZ (Senior Automotive Analyst, IHS Global Insight): Ford could be hit with a lengthy strike, the most unfortunate situation for all concerned.
SAMILTON: But Ford officials say they'll continue to work with the UAW, not against it, to keep the company on track. They plan to keep the new products coming, too, starting with the introduction next year of a car that's been popular in Europe: the Ford Fiesta.
For NPR News, I'm Tracy Samilton in Ann Arbor.
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Ford Posts Unexpected $997 Million Profit
Ford, the only Detroit automaker to dodge direct government aid and bankruptcy court, surprised investors with net income of nearly $1 billion in the third quarter and forecast a "solidly profitable" 2011.
The automaker said Monday earnings were fueled by U.S. market share gains, cost cuts and the Cash for Clunkers program, which drew flocks of buyers to showrooms this summer. Ford's shares rose 68 cents, or 9.8 percent, to $7.68 in morning trading.
The latest results signal that Ford's turnaround is on more solid ground. The company lost more than $14.6 billion last year and hasn't posted a full-year profit since 2005. While it made a profit in the second quarter, that was mainly due to debt reductions that cut its interest payments.
Ford, based in Dearborn, Mich., reported third-quarter net income of $997 million, or 29 cents per share. Its profit forecast for 2011 was a step above previous guidance of break-even or better for the year.
Ford's key North American car and truck division posted a pretax profit of $357 million, the division's first quarter in the black since early 2005. Ford cited higher pricing, lower material costs and increased market share for the improvement.
Excluding one-time items, Ford earned 26 cents per share, blowing away analysts' expectations of a loss of 12 cents.
The earnings came despite an $800 million revenue drop. But Ford said it cut costs by $1 billion during the quarter, accomplished through layoffs in North America and Europe, reduced pension and retiree health care costs and improvements in productivity and product development.
Chief financial officer Lewis Booth said the company took in $1.3 billion more than it spent in the quarter, an improvement over its $1 billion cash burn in the second quarter.
"That's a huge deal," Booth said.
Ford's plan to create demand and get better prices for its products, coupled with cost cuts, gave the company confidence that it will make money in 2011, Booth said.
But Ford still faces obstacles in its turnaround. Last week, workers overwhelmingly rejected an agreement with the United Auto Workers that would have brought Ford's labor costs in line with rivals General Motors Corp. and Chrysler LLC. Workers objected to clauses limiting their right to strike and freezing entry-level wages, and felt the company was healthy enough and didn't need further concessions.
The rejected deal also would have changed rules so skilled tradesmen such as electricians and pipefitters work in teams and perform more than one task.
Rejection of the deal isn't likely to place Ford at an immediate cost disadvantage to its crosstown rivals because savings from the concessions are longer-term, said Gary Chaison, a professor of labor relations at Clark University in Worcester, Mass. Neither the company nor the UAW has released any cost savings numbers.
The third-quarter profit makes it extremely unlikely that the company will push to head back to the bargaining table before the current UAW contract expires in the fall of 2011, and union leaders also are unlikely to take another deal to the membership, Chaison said.
"I think the company has no credibility asking for concessions now, and I think the leadership is quite embarrased for making a case for concessions," he said.
Chaison said Ford could make some noise about moving new vehicle production to Canada, where unionized workers on Sunday approved a package of concessions, but it's more likely that Ford will live with the current contract until 2011.
The other area where Ford has a cost disadvantage is debt. Ford reported $26.9 billion in debt, up $800 million from the second quarter.
The company avoided the same fate as rivals Chrysler and GM by mortgaging its factories and even the familiar blue oval logo to borrow $23.5 billion before credit markets froze last year.
Ford didn't quantify the impact of Cash for Clunkers, which offered buyers rebates to trade in their vehicles. The program helped Ford cut costly incentives and raise production.
It also won buyers; the fuel-efficient Ford Focus sedan and Ford Escape, a small SUV, were among the top five sellers under clunkers. Ford sales climbed 17 percent in August thanks to the program.
Ford's revenue fell $800 million for the quarter, to $30.9 billion, due mainly to its financial services arm, Ford Motor Credit, making fewer loans.
But the division still posted a pretax profit of $677 million, and revenue from auto operations rose slightly to $27.9 billion.
Ford also has benefited from consumer goodwill after it declined government bailout money and didn't go into bankruptcy over the summer as GM and Chrysler did. Ford grabbed sales from its rivals, posting the largest increase in market share of any automaker in September. Ford expects an overall gain in U.S. market share in 2009, a feat it hasn't accomplished since 1995.
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