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Ford turns a profit, reaping rewards of turnaround
2009-11-02
DEARBORN, Mich. - One of the troubled Detroit Three automakers, Ford, is making money again and looking for better times in no more than two years. Emerging from a three-year makeover with popular cars and trucks, Ford said Monday it earned nearly $1 billion in the third quarter and will be solidly profitable by 2011, a more optimistic forecast than earlier. While heavy debt and lean times for American car shoppers threaten the comeback, the report puts Ford in a far better position than General Motors or Chrysler, which are still finding their bearings after emerging from bankruptcy. Ford's cars are winning popular and critical acclaim, like the Fusion midsize sedan and more gas-efficient Focus compact. And years of painful cost-cutting, which have halved its work force, have looked prophetic since the recession struck, hurting demand. Even in North America, the company's biggest market, Ford turned a profit after losing money there for four years. GM and Chrysler, meanwhile, are still trying to cut jobs and win back customers, many of whom are steering toward their healthier rival. Three years ago, Ford was considered in the worst shape of the Detroit Three after posting what was at the time the worst annual loss in its history. The big quarterly profit is the fruit of changes Ford has been making for several years. At the end of 2005, then-CEO Bill Ford Jr. and two other Ford executives developed a plan to shut down factories, slash the work force and speed the development of cars and trucks. A year later, Bill Ford left the CEO job and installed Alan Mulally, a former Boeing executive, who further honed the plan and made a key decision - mortgaging assets like its blue oval logo to raise $23.4 billion. When the economy faltered last year and took auto sales down with it, Ford had the cash to weather the storm. "GM and Chrysler still have quite a bit of restructuring to do and simply don't have the product competitiveness across their lineup that Ford does," said Mark Oline, auto industry analyst for Fitch Ratings. Ford has gained a full percentage point of U.S. market share so far this year, the equivalent of selling about 100,000 cars and trucks. GM and Chrysler combined have lost 4.5 percentage points, mostly to foreign competitors like South Korea's Hyundai. Ford didn't have one vehicle that was a silver bullet, like the Ford Taurus was in the early 1990s, said Erich Merkle, president of the industry consulting firm autoconomy.com in Grand Rapids, Mich. Instead, it relied on several strong vehicles spread across its lineup, including the Fusion, a restyled Focus and the Escape, a small SUV. "In today's market, you can't tie success to one or two vehicles, given the fragmentation of the marketplace," he said. "You need to have a multi-hit strategy." Just last week, Consumer Reports magazine named 46 of 51 Ford, Lincoln or Mercury models as average or better in reliability, a far better track record than either GM or Chrysler. But Ford still faces an uncertain future. Mulally wouldn't forecast a profit for 2010 because the company is concerned about low consumer confidence and high unemployment, which could hold down demand. "We're just not that sure about the strength of the recovery," he said. Still, the results were a good sign. The Dearborn-based company reported overall net income of $997 million, or 29 cents per share, an improvement of $1.2 billion from a year ago. In North America alone, Ford made $357 million before taxes, its first quarter in the black since early 2005. Ford said its controlled production and a string of new products, including the F-150 pickup and Taurus sedan, have allowed it to command higher prices. This summer's Cash for Clunkers government rebate program also gave the company room to drop costly discounts. It's a far cry from Ford's biggest years. Ford made $22 billion in 1998, and it controlled about a quarter of the U.S. market. By last year that market share was down to about 14 percent. The company's debt remains a concern. It rose by $800 million from the second quarter to $26.9 billion. And it will grow again as Ford contributes to the United Auto Workers-run health care plan for retirees. GM and Chrysler were able to shed much of their debt in bankruptcy court. Ford hopes to improve its balance sheet by restructuring some of its debt. Ford also has been unable to cut its labor costs. On Monday, the UAW said its members overwhelmingly rejected a new contract that would have lowered benefits and wages. But industry analysts say the disadvantage won't be large enough to hinder Ford's recovery efforts. Where Ford would be at a big disadvantage is how it classifies jobs. GM and Chrysler reduced the number of skilled job classifications from around 20 to three or four, meaning tradesmen such as electricians or pipe-fitters can now do multiple jobs. Without the concessions, Ford will need more people on an average shift than GM or Chrysler. Ford's success also puts the UAW in an awkward position. If Ford takes too much market share, it could hurt Chrysler, which is 55 percent owned by the UAW's retiree health care trust fund. ___ Associated Press writer Stephen Manning in Washington contributed to this report.
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