Post by TonyV on Apr 28, 2010 14:26:51 GMT -5
Last Updated: April 28. 2010 1:02AM .
Ford gets momentum from $2B profit
1st-quarter results more proof that tough cuts, fresh lineup paying off
Bryce Hoffman / The Detroit News
Four years into a painful restructuring that cost tens of thousands of jobs, Ford Motor Co. is ramping up production and meeting new demand for vehicles with fresh products that people want to buy.
Ford reported a better-than-expected $2.1 billion first-quarter profit Tuesday and the automaker is making money again selling cars and trucks. CEO Alan Mulally expects Ford to finish 2010 "solidly profitable" -- a year ahead of schedule.
Ford's turnaround is not complete, but the results show that Mulally's plan is working. As world auto markets begin to recover, the company is poised to benefit because it made long-needed structural changes by closing factories, shedding non-core operations and slashing costs.
This would not have been possible just a few years ago when Ford -- like the rest of Detroit -- suffered from an unhealthy obsession with market share and union contracts required it to keep factories open even if no one was buying the vehicles they produced.
When the country went into a major recession in the late 1970s, Detroit kept building cars. By the time a recovery began in the early 1980s, the U.S. car companies were saddled with excess inventory that had to be sold at deep discounts. That cut into profits, hurt resale values and damaged their images.
The same thing happened again in the 1990s.
Japanese rivals, meanwhile, including Toyota Motor Corp. and Honda Motor Co., matched production with demand, and rode the recovery to record profits and increased market share.
Now, Ford is doing the same thing.
"Clearly, their restructuring effort has helped them," said analyst Jesse Toprak, vice president of industry trends at TrueCar Inc. "They were more ready for this recovery. ..."
Ford's $2.1 billion net profit -- $2 billion on an operating basis when special charges and taxes are excluded -- was the automaker's fourth consecutive quarter in the black and its highest quarterly operating profit in six years.
"Our performance this year is off to a more encouraging start than anticipated," Mulally said.
"Based on our improving performance, the gradually strengthening economy and our present assumptions, we now expect to deliver solid profits this year."
Last year, Ford lost more than $1.4 billion in the first quarter. The company credited its gains to improved vehicle sales, continued streamlining of its global automotive operations and profit from its lending arm, Ford Credit.
"We really are focused on profitability. We've tried driving the business ... by market share in the past, and it's not the best way to success," said Chief Financial Officer Lewis Booth. "We've really worked hard to restructure ourselves to match the prevailing demand."
Ford isn't the only automaker showing signs of life at what may be the end of the industry's long drought: General Motors Co. has repaid its government loans ahead of schedule, and Chrysler Group LLC reported a slim operating profit in the first quarter. Like Ford, GM and Chrysler imposed dramatic restructuring and cutbacks to survive.
Rising as competitors sink
Toprak said Ford has benefitted from the woes afflicting its rivals. GM and Chrysler both paid a big price for their government bailouts and bankruptcies last year, and Toyota is struggling with recalls and quality issues that have undermined consumer confidence in the brand. Toprak said Ford has gained market share from each of these companies.
"That doesn't take away from the success of Ford's products though," he said.
"Ford's lineup of vehicles today is the best they've ever had by far. But their trajectory of growth wouldn't have been as strong if it wasn't for their competitors struggles."
Booth said Ford's products are central to its turnaround plan.
"During the really tough times in 2008 and 2009, we didn't rip up our cycle plan," he said.
"We continued to invest heavily in new products," Booth said, "because we knew that only world-class products would help us get out of the difficult period we were in, and I think you're seeing that now. Our sales growth is being led by these new products."
And Ford plans to produce a lot more of them over the next three months than it did during the same period last year. On Tuesday, the automaker said it plans to boost second quarter factory output in North America by 174,000 vehicles and announced similar production increases in other regions.
That means more work for Ford's factory employees.
Too early to declare victory
As the company's success builds, Ford faces increasing pressure from union members who want a restoration of concessions made in tougher times.
Ford says turning back the clock would not help anybody in the long run.
"By continuing to be competitive, we can build the business for the benefit of all our stakeholders," Booth said.
Investors were not overwhelmed by Ford's first quarter results, in part because they anticipated the company's strong numbers. On Monday, Ford's stock hit a 52-week high of $14.57 amid reports that Ford made $1 billion in the first quarter, but shares fell 6.29 percent Tuesday, to $13.55 a share
"Some of the stock price decline had nothing at all to do with Ford, but was due to the general market malaise that settled in after Greece's credit ratings were lowered," said analyst Shelly Lombard of Gimme Credit.
"However, Ford's own results also generated some investor angst. (Ford Credit) contributed over $800 million of Ford's $2 billion of pretax operating profit and over half of that $800 million came from lease residual gains that aren't likely to be repeated."
Booth said it would be a mistake to take Ford's first quarter results and multiply them by four, as the gains from lending arm Ford Credit and other areas are likely to decline even as costs increase because of new product launches and rising raw materials prices.
Mulally said it is too early to declare victory.
"While we are pleased with our momentum, the business environment remains challenging," he said.
"Consumer confidence remains relatively weak and the global auto industry continues to wrestle with excess capacity. But we are committed to remaining absolutely focused on executing our business plan, while developing an even better plan for the future."