Ford Profits While Toyota Struggles

Automaker Ford announced Thursday that it made $2.7 billion last year, its first profit in four years. Meanwhile, officials from Toyota, the world's biggest automaker, said they were expanding their recall to vehicles sold in Europe and China.

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ROBERT SIEGEL, host:

From NPR News, its ALL THINGS CONSIDERED. Im Robert Siegel.

MADELEINE BRAND, host:

And Im Madeleine Brand.

It was an upside down day in the global auto business. The worlds top car maker, Toyota is extending an already giant recall to Europe and to China.

Meanwhile, in beleaguered Detroit, there were actual profits. This morning, Ford announced its first profitable year since 2005.

To make sense all of this, we turn now to Frank Langfitt. He covers the auto industry for NPR. And, Frank, these two stories one day blip, something temporary or is there something more going on here?

FRANK LANGFITT: Madeleine, there is more going on here. What youre seeing really is the global auto industry in flux. Lets start with Toyota.

You know, Toyota won over a generation of consumers from Ford, General Motors, the other Detroit company Chrysler with quality. But in recent years, Toyota has been expanding really fast and its had more quality problems. Now, its got this mushrooming recall with faulty accelerator assemblies. Now, its millions of recalls and the concern is some of these pedals seem to the sticking a little bit, not coming up quickly enough and could cause accidents.

So, what Toyota has done is its halted sales of eight models in the U.S. and announced a recall in China of about 75,000 vehicles today, and its planning of recall in Europe. Now, this is definitely going to cost the company probably billions of dollars. But more importantly, its scaring consumers and its hurting Toyotas reputation.

BRAND: So, what is the company doing now to fix this accelerator problem?

LANGFITT: Weve been talking to the company and also some sources and they say the problem seems to be a mixture of wear and condensation inside the assembly, and is kind of spongy. So, when you take your foot off the pedal, in some rare instances, it doesnt spring up.

Now, Toyota says its actually got a fix for the problem. The company that made it, made these accelerators called CTS. Its in Indiana. And it started sending new accelerators to factories last week. But this is a recall, as I said, its in the millions.

So, Toyota has to find a way for dealers to repair these things one by one. Theyre working on a solution, hope to find it soon. But then they have to share it with the government. And obviously to do all these fixes, its going to take a long time.

BRAND: And, Frank, beyond this current accelerator problem, whats been the story recently at Toyota?

LANGFITT: You know, the Toyota brand has always been about quality. I mean thats why people buy the cars primarily, not because of the way they look. But a few years back, Toyota decided it really wanted to take aim at GM and become the biggest automaker in the world. They started building full-sized pickup trucks, rolling out a lot of new models.

But along the way, quality for which it was really known began to slip. And this is according to consumer reports. And theyve been watching this very, very carefully.

And to give you an example, it got so bad that even last year the head of Toyota admitted that the company had just expanded too fast.

BRAND: Now, I wonder if theres any shout outs in Detroit. Are other automakers trying to take advantage of Toyotas problems now?

LANGFITT: Absolutely, and very quickly. Both GM and Ford are offering cash back for some Toyota trade-ins. You know, the global auto industry, its really a cut-throat business.

BRAND: Well, lets turn to Ford then. The company had some good news today. It said it made nearly $3 billion last year. How did they do that?

LANGFITT: Well, you know, before the recession, Alan Mulally, hes the Ford CEO, he mortgaged the company, borrowed more than $20 billion and he used that to kind of weather the storm, all the bad sales that weve seen in the last 12, 18 months. And he also took the money to investment in new products.

Well now, Ford has a good lineup of quality products coming out. Theyve been gaining market share which, you know, as we began this conversation as Toyota shows fortunes can change really fast in this business. Ford does have a huge amount of debt. Its far more than GM and Chrysler, which were able to kind of get rid of a lot of their debt in bankruptcy.

So, one of the question going forward is, you know, as Ford begins to pay off more and more of this debt, does it have enough money to continue to invest in product and kind of keep on a roll here.

BRAND: Frank, thank you.

LANGFITT: Happy to do it, Madeleine.

BRAND: Thats NPRs Frank Langfitt. He covers the auto industry.

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