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Posted on Tue, Nov. 03, 2009

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After losses, Ford Motors turns a profit

BY BRENT SNAVELY

Detroit Free Press

DETROIT — Ford Motor Co. has come a long way from the nearly $30 billion in losses it racked up between 2006 and 2008.

After closing more than 10 plants and slashing 45 percent of its work force since 2006 in its long-ailing North American division, the automaker Monday reported net income of $997 million compared with a net loss of $161 million 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 like 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. The company improved its cash position by $2.8 billion, ending the quarter with $23.8 billion in cash.

Ford said it "expects to be solidly profitable in 2011," excluding special onetime charges, "with positive operating-related cash flow."

Ford said a strong customer response to its new cars and trucks, cost reductions and improved results at its financing arm, Ford Motor Credit Co., contributed to the result.

The result was especially impressive because Ford's third-quarter revenue was $30.9 billion, down $800 million from the same period a year ago.

"While we still face a challenging road ahead, our transformation is working, and our underlying business continues to grow stronger," CEO Alan Mulally said Monday during a conference call. "We remain on track to achieve or exceed all of our 2009 financial targets."

While the federal government's Cash for Clunkers program boosted Ford's sales in the United States in July and August and similar programs in Europe also benefited Ford, Mulally said Ford would have earned a profit anyway.

"We have been increasing our share in this down market every month for the last 10 months," Mulally said in an interview with CNBC. "So we are on a pretty steady trajectory of growth now."

Given Ford's strong third-quarter performance, several analysts questioned on the conference call why Ford isn't confident it can become profitable sooner than 2011.

"We are just not sure, mainly about the strength of the recovery," Mulally said.

But Mulally, who was recruited from Boeing Co. to Ford in late 2006, said Ford is watching the economy closely and will provide an updated profit outlook in January, when it reports year-end results.

Ford reported an operating profit of $1.1 billion, excluding special items, during the third quarter, easily outperforming Wall Street's expectations. An operating profit is a company's earnings from ongoing operations before interest and taxes.

A big reason for Ford's improved financial performance was a $1.9 billion improvement in net pricing around the world compared with the same period last year. Most of that, $1.4 billion, was achieved in North America.

Ford said its net pricing improved because it has cut incentive costs and become more successful at selling vehicles with more options and accessories both in the United States and in Europe.

Mulally also noted that the launch of the new Ford F-150, which is a higher-priced vehicle, also contributed to the pricing gain.

Lewis Booth, Ford's CFO and executive vice president, said Ford's production cutbacks have allowed the company to also cut incentive spending, because the company no longer has excess inventory it must discount heavily in order to sell.

"It's due to both the disciplined approach to production... and incentives," Booth said. "And a lot of this pricing has to do with our product programs."

Ford's improvement also was boosted by cost cuts. During the first nine months of this year, Ford said it has reduced automotive structural costs by $4.6 billion.