Ford Posts a Profit but Expects Difficulty

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Ford surprised investors by turning a quarterly profit, its first gain in two years. The strong performance was attributed to cost-cutting and the sale of Ford's Aston Martin unit. But Chief Executive Alan Mulally says Ford is bracing for difficulty.


Another story on shifting fortunes, now. A U.S. automaker just announced a quarterly profit - it was Ford - considered to be in the toughest shape of any American car company, and that does not mean that Ford is out of the woods. Even the company's CEO acknowledges that.

NPR's Jack Speer explains.

JACK SPEER: For a struggling Ford, which has been closing plants and laying off workers, the news that even if for only one quarter, the company was back in the black was a breath of fresh air. CEO Alan Mulally told NPR today that Ford's turnaround plan is on track.

ALAN MULALLY: We are very encouraged of progress on our plan to create a vibrant and viable long-term Ford Motor Company.

SPEER: For its latest quarter, Ford posted net earnings of $750 million - well ahead of analyst estimates. They had forecast yet another money-losing quarter. In 2006, Ford dropped a staggering $12.6 billion. Mulally credited Ford's ongoing restructuring and said the company is moving quickly to build the kinds of vehicles customers are demanding.

MULLALY: I think that the most important thing is the aggressive action we've been taking. And the key was to reduce the production capability to match the real demand. There's less consumer preference for the larger trucks and SUVs and more for the cars, and so restructuring to this new customer demand to operate profitably was - contributed the most.

SPEER: Kevin Tynan of Argus Research agrees the numbers look good on the surface, but he also notes Ford still lost money at home in North America.

KEVIN TYNAN: This is not unlike the situation a couple of quarters ago with General Motors. The restructuring seems to be on target, some surprisingly good quarters. But the fact is, until you have North America operating profitably, you can't really call a turnaround successful.

SPEER: And even Mulally said today, the rest of the year is likely to be far more challenging.

Rebecca Lindland is an analyst at Global Insight. She says Ford's closing of more than a dozen plants and the layoffs of tens of thousands of hourly and salaried employees has helped boost the bottom line. And she says, while there are some unique events that helped Ford in its latest quarter, the restructuring is moving faster than many had expected.

REBECCA LINDLAND: I think that there were a couple of things that contributed to the revenue. First of all, there was a $443 million one-time adjustment on the sale of Aston Martin, so that certainly helped. But they still made money even above that. The other thing is they really were able to cut tremendous amount of cost from their North American operations, which, quite frankly, we had sort of spot with a little bit like a blood from a stone.

SPEER: But if Ford is to return to long-term profitability, it will have to find more places to cut, something that will become increasingly difficult. One thing Ford is looking at is selling some of its luxury brands: Jaguar, Land Rover, and Volvo. Ironically, those brands help contribute to Ford's stronger earnings. But Lindland thinks at least in the case of Jaguar and Land Rover, those brands are now a distraction from Ford's primary business.

LINDLAND: We do think it's a good thing if they do sell off Jaguar and Land Rover because they do need to focus on getting the Ford brand back on track and really focusing on their core brand, which is Ford.

SPEER: Ford slightly revised its earnings forecast for this year, though the automaker says it will still lose money. Ford doesn't expect to return to profitability until 2009.

Jack Speer, NPR News.

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