Ford’s $2.7 billion profit is first step toward recovery

DETROIT
— Ford proved Thursday that it is further along than most thought
toward a full recovery, but the company still faces many economic and
competitive challenges in 2010.

They include: A large amount of debt, difficulties
with the UAW, a slowly recovering economy, and the possibility of
rising gas and commodity prices.

Ford reported a $2.7 billion profit for 2009 — its first profit since 2005 and a $17.5 billion improvement from 2008 — and announced it would reinstate profit sharing for hourly workers for the first time since 2004.

“It really is pivotal and historic that during the
worst economic recession in 30 or 40 years … we are not only able to
survive … but were able to deliver profitable growth,” said Ford
President and CEO Alan Mulally.

But Ford has more than $34.3 billion in debt.

“We are not kidding ourselves. … We still have a huge amount of debt on our balance sheet,” Ford CFO Lewis Booth said. “We are still working on that.”

Sean McAlinden, senior economist for the Center for Automotive Research, also pointed out that some parts of Ford’s reorganization plan are incomplete.

“They still have plants to shut down,” McAlinden said.

Ford has said it plans to close assembly plants in Michigan, Minnesota and Ontario over the next three years.

Meanwhile, Ford is in the midst of spending more than $1 billion to convert Michigan Assembly Plant in Wayne, Mich., and Louisville Assembly Plant in Kentucky to car plants.

McAlinden also said Ford continues to have higher labor costs than Asian automakers in the U.S.

On Thursday, Mulally estimated that Ford’s average total cost for its hourly workers is about $55 per hour compared with about $50 per hour for Asian transplants.

And even though Ford announced earlier this week that it plans to add 1,200 jobs at its Chicago Assembly Plant later on this year, Booth told the Detroit Free Press
the number of new hourly workers Ford plans to hire isn’t going to have
a major impact on the company’s total labor costs any time soon.

Ford also had difficulties with the UAW in 2009 that
have continued this year. More than 70 percent of Ford’s UAW workers
voted against proposed contract changes in October and the UAW has
initiated a nationwide petition drive to file grievances over the
reinstatement of merit pay for salaried workers.

UAW Vice President Bob King on Thursday said the union plans to continue with that process despite the reinstatement of profit sharing for hourly workers.

Ford is required under its labor contract to share any profit it makes with hourly workers, King said, and the $450 that hourly workers will receive isn’t comparable to salaried workers’ merit increases.

Despite those challenges, analysts say Ford is heading into 2010 in its best shape in years.

Over the next 15 months, Ford plans to launch seven
new vehicles, including the redesigned Ford Edge and Lincoln MKX
crossovers, a redesigned Super Duty pickup, a Mustang GT, the Ford
Fiesta subcompact, an all-new Ford Explorer SUV and the Ford Focus
compact car.

That’s more new cars and trucks than either Chrysler or General Motors has coming over a similar period, McAlinden said.

Those new cars and trucks give Ford the best chance any domestic automaker to snare market share from any automaker, including Toyota as it struggles with multiple recalls and quality issues a sales freeze on eight of its most popular models, McAlinden said.

“Ford is just marching … with this wonderful product plan,” McAlinden said.

Efraim Levy , equity analyst for Standard &
Poor’s, said Ford already proved in 2009 when Chrysler and GM filed for
bankruptcy that it knows how to gain market share when its competitors
falter.

“So I think that helps them take advantage of anybody else who is stumbling, like Toyota,” Levy said.

Ford has announced that it is offering $1,000 to any customer that wants to trade in a Toyota, Lexus, Scion, Honda or Acura vehicle for a Ford.

Mulally on Thursday downplayed Ford’s plans to go after Toyota customers but acknowledged the opportunity.

“Clearly, with the void right now, and people
needing vehicles, I’m sure that there is going to be even more interest
in Ford,” Mulally said.

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MOST DIVISIONS SEE PROFIT:

With the exception of Volvo, all Ford divisions reported a pretax profit for the October-to-December period in 2009.

—North America: Pretax profit of $707 million compared with a pretax loss of $1.9 billion for the period in 2008.

—South America: Pretax profit of $369 million compared with a pretax profit of $105 million for 2008.

—Ford Europe: Pretax profit of $305 million compared with a pretax loss of $338 million a year earlier.

—Ford Asia Pacific: Pretax profit of $19 million compared with a pretax loss of $208 million.

—(ASTERISK)Volvo: Pretax loss of $32 million compared with a pretax loss of $736 million.

—Ford Motor Credit: Pretax profit of $696 million compared with a loss of $372 million.

(ASTERISK)Ford expects to complete sale of Volvo to Chinese automaker Geely by mid-year.

—Source: Ford

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HOW FORD DID IT:

Key factors that helped Ford earn a profit:

—Products: The success of hot products, such as the
redesigned Ford Fusion and all-new Ford Fusion Hybrid, which became the
best-selling car made by a domestic automaker in 2009 and won numerous
awards, and the redesigned Ford Fiesta subcompact car, which became the
second-best selling car in Europe in 2009.

— “One Ford”: Made progress on its “One Ford” plan by selling Jaguar and Land Rover in 2008 and reduced its ownership of Mazda from 33 percent to 11 percent in 2008, allowing Ford to concentrate on Ford, Lincoln and Mercury.

—Cost cuts: Reduced manufacturing, engineering, pension, advertising and incentive costs by $5.1 billion in 2009.

—Loans: Took out $23.5 billion in
loans in 2006 to help it survive —a move that gave the company the
reserves it needed to survive the global recession that began in 2008
without asking for emergency federal loans.

—Reduction in debt: Found creative ways to reduce its debt in 2009, moves that resulted in a $4.7-billion one-time accounting gain and led to improved credit ratings.

—Plant closures: Closed 14 assembly and parts plants
over the past four years and reduced its total North American workforce
by about 41 percent since 2006.

—Lowered inventory and incentives: Ford reduced its
total inventory of cars and trucks in the U.S. from 441,000 at the end
of 2008 to 382,000 at the end of 2009. With fewer cars to sell, Ford
was able to cut incentive spending by 26.1 percent in 2009 to an
average of $2,701 per vehicle, according to Autodata.

—Sources: Ford, Free Press research

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