Ford turned a profit in the second quarter of this year, thanks to a share offering and other debt-reduction actions which covered a $424M pre-tax operating loss. In the third quarter, however, Ford’s profit needs no such qualification. Pre-tax operating profits were $1.1B, including a $357M from North American operations. For the record, this marks the first Ford North America profit since Q1 2005. Perhaps more importantly, for an automaker that’s mortgaged up to (and including) its logo, Ford’s cash pile grew by $2.8B (on $1.3B positive cashflow), to $23.8B. On the strength of these surprisingly strong results, Ford has revised its 2010 guidance from being “break even or better” to “solidly profitable.” The future is looking far brighter for Ford than any of its cross-town rivals, but there are a few more considerations to keep in mind before we can pronounce Ford officially out of the woods. Even the Blue Oval is warning that its 2010 guidance will be revisited after full-year results are in.
Perhaps most importantly, 3Q profit from North American operations have to be seen in the context of Cash for Clunkers stimulus. Not only did volumes increase due to the $3B federal stimulus, but transaction prices were high as well. With the government offering up to $4,500 off of qualifying models, dealers were charging full price for much of the third quarter. Ford acknowledges [via the WSJ] that “lower material costs, job cuts and consumers buying more high-end models equipped with technology features,” contributed to its domestic profits. Whether Ford’s North American operations can turn a healthy profit without government stimulus remains to be seen.
In Europe, Ford’s sales have also been kept afloat on a wave of stimulus. Citing the end of clunker-stimulus in Germany, a slowdown in the UK and a savage downturn in the Russian market, Ford’s CFO notes:
Looking at 2010 there is a high likelihood of a substantial decrease in European industry volumes. This decrease could more than offset U.S. sales volumes which may improve somewhat from this past quarter’s results.
Though European pre-tax profits grew to $193M, revenue actually fell 21 percent to $7.6 billion. The falling revenue-increasing profit model was replicated in the Asia/Pacific region which posted $27M profits, despite revenue falling 11 percent to $1.5 billion. South American operations saw revenue fall 22 percent to $2.1 billion, although profits of $247M were down compared to last year on currency losses.
Ford’s overall revenue fell in the third quarter even when compared to 3Q 2008’s miserable performance. The major lesson from these third quarter results is that Ford is cutting its costs admirably to cope with reduced demand. The second major lesson: Ford needs to show it can keep revenue from falling further when post-clunker stimulus results come in in December. Meanwhile, a deeper downturn in European markets could spell real trouble in the short term, while modest gains in Asian growth markets point to longer-term challenges. By Detroit standards, however, these results are about as close to peachy as they’ve been in a long while. Just don’t tell the UAW . . . .
“By Detroit standards though, these results are about as close to peachy as they’ve been in a long while. Just don’t tell the UAW…”
To late they already know…thus Ford will have to suffer for being successful. Why the UAW act like crabs in barrel is beyond me..I hope that they really dont want Ford to get bailout cash in Bankruptcy court due they?
Just don’t tell the UAW…
They already know, and are working feverishly to make that profit evaporate for next year. Profit for FoMoCo is a terrible thing in regards to the UAW. They need to continue to lose money until the Union agrees to make concessions similar to GM and Chrysler’s deals. It’s sad, but it’s true.
Obviously this buys them extra time. We shall see how things look in the next quarter.
Extra time? You don’t think that they’re pretty much out of the woods yet?
It looks like they have no cash burn to worry about anymore. They’re making money in a very terrible year and increasing market share.
They have good PR from quality rankings. They never took a bailout.
The only downside I see is the greedy bastards in the UAW.
“Just don’t tell the UAW…”
Yeah…now they’ll be even less likely to take the same concessions as the bankrupt workers from GM and Chrysler.
If Ford is going to paint themselves as “different than GM/Chrysler”…then they should back that up…and not make their employees take unreasonable concessions. Ford is talking out of both sides of their mouth. On the one side, they are saying that they need the workers to take these concessions so the company can remain competitive….and out of the other side, they are claiming a profit in the third quarter.
How much of this was taxpayer sponsored “profit”?
Twotone
I think we are going to see a wave of continued profit upside surprises from many manufacturers as wholesale prices of most commodities are way, way down from where they were last year. Wages are also under siege as workers are scared to death of loosing their jobs and health benefits. Meanwhile, retail prices on most things from cars to butter have not dropped as much as the cost of the underlying input materials have dropped. Transportation costs are also way down from their peaks as diesel fuel is selling for nearly half of what it did a year ago.
Speaking of Ford, I’m ready to declare it the winner of the Last Man Standing contest. Ford is in a position to keep moving forward while GM and Chrysler are still thrashing about. Now Ford mostly needs to worry about VW, Toyota, and Hyundai as its first tier global competitors. Hyundai doesn’t have the sales volume or global reach yet to really be in the first tier, but it sure has momentum.
It’s a 997 million dollar profit for Q3— they are still in the red for the year.
Not to mention I seem to remember GM pulling off a similar profitable quarter amidst the red ink in 2005 or 2006. One quarter doesn’t mean the company is healthy. Just healthier than GM & Chrysler, which is a bit like saying I’m a paragon of rosy-cheeked health because I’m slightly better off than most people in the ICU.
shows the job can be done. excellent news on the cash flow. and the UAW was right to hold their ground. these hard working Americans have shown flexibility and now deserve to share in the positive results. apparently Ford does have a better idea. congrats!
@ Ford
Good job!
If GM made a profit last month, would that excuse them for the previous 9? (well lots more than 9 of course but you should get my point).
With CFC happening during the 3rd quarter, how realistic is to expect Ford to continue to make the same profit?
Also, how does the 10 billion in loans Ford got figure into this?
Ford’s cash pile grew by $2.8b (on $1.3b positive cashflow), to $23.8b.
these hard working Americans have shown flexibility and now deserve to share in the positive results.
Ford mortgaged everything to survive this recession and it looks like they did – if only by the skin of their teeth. The question then is, how much of those earnings should the UAW allow Ford to retain to pay off debt and build cash to survive the next recession?
I think the UAW needs to think a lot more about he long term viablility of their employeers.
excellent news on the cash flow
Ford probably deserves some kudos but earnings are not cash flow. These are different concepts, and it’s quite possible to have positive earnings but negative cash flow.
Fortunately for Ford, it has done a good job of building cash this year. It added $2.8 billion during the quarter and $10.4 billion for the year to date.
Seems that things are moving in the right direction. Now they need to focus on reducing incentives, continuing efficiency improvements and reducing its debt.
Ford would have done better to pay down some debt and show a loss on paper for Q3. No doubt these “good” numbers were leaked to the UAW before voting on concessions, with obvious results.
The union is already looking to jump back on the gravy train and squeeze the life out of the one company left that has any life in it.
It is nice to see a positive result for once.
If the result was because of C4C it proves the program provided an immediate and welcome stimulus which is more than I can say for any of the other TARP funds results.
Although IMO it is a very long way from Ford being out of the woods it is certainly a step in the right direction.
Ford would have done better to pay down some debt and show a loss on paper for Q3.
Paying down debt would do very little to reduce earnings. That would reduce cash flow, but paying principal on debt would do virtually nothing to earnings. (The reduction in interest payments would impact earnings, but payments of principal are not in earnings numbers.)
Ford seems to be gearing up for more stock sales — good earnings pump up the stock value, which increases the cash raised from new stock issuance. I would imagine that proceeds raised from selling new equity would go into R&D, expansion and debt reduction.
As it stands, Ford has already put a credible dent in its debt. Making it too much of a priority too soon would be a mistake. Sustainable profitability is more important.
we need to get off blaming the union for management mistakes. some fail to realize the back breaking work these people do and under what circumstances they operate. auto production is hard work, unlike comfy offices and cosy surroundings. give the workers a well deserved pat on the back, it’s them that make the quality story ring true, and on their shoulders that the actual work gets done.
solidarity forever…
Without a No-Stike, Ford is never further than a few weeks from being driven to Chapter 11. A company will NEVER prosper with a gun like this to it’s head.
Yes Ford made a profit. What percent of the sales were from outside U.S. assembly operations?
Help me understand what it will take for the UAW management and rank-and-file to get the connection.
Buickman, until this recent no-vote by the UAW, I always believed that management drove GM and Chrysler into bankruptcy and not the UAW.
I always believed that the bad decisions, internal politics, and finance guys running a car company were the main contributors to the domestics’ downfall.
But now we get these Ford UAW people basically telling their company, who is not yet 100% healthy, that they are not willing to take part in the sacrifice that everyone else in the company made already.
Do they know that the white collar workforce has been cut in half at Ford? What did they give up to date, exactly? The silly jobs bank?
For the first time, I am blaming the UAW…
Let’s remember what folks were saying about Ford just 365 days ago, shall we? So Ford should be very relieved. Without C4C, they wouldn’t have done as well, but their hard work is getting them results.
Too bad for GM and Chrysler, however.
Congrats Ford Management, White Collar Workers, UAW, Suppliers, Shareholders and Bondholders. It is really great to see an organization work its way back from the edge of the abyss.
Its one thing to blog and bitch about the auto industy its quite another thing to do the heavy lifting needed to profitably create quality products that people will pay for. Especially given just how complex a business this is when one considers the financial, design, engineering, gov’t regulation, union manufacturing, marketing, distribution and sales that is required to get a car into the marketplace.
Its not a bad thing on a number of levels, for all of us who live here in the US, to have Ford succeed. So I do sincerely hope that Ford continues on the road to recovery.
“Without a No-Stike, Ford is never further than a few weeks from being driven to Chapter 11.”
I guess that Hyundai and VW must be on death’s door as well then. Their home plants are all unionized by very agressive unions.
Cash for clunkers may have helped some sales numbers, but does anyone really think all those Focuses sold helped the bottom line that much? Maybe a wee bit…but the Focus is possibly not profitable at all.
Fusions may have helped, but clearly, 997 million in profit didn’t come largely from C4C.
A few days ago, Boeing announced that a second production line for the 787 Dreamliner would be built in South Carolina rather than in Washington state at one of its existing plants. The main contributor to this decision was the better business climate in South Carolina. This is composed of several things including faster permitting processes, but definitely a main factor was the company’s inability to get an agreement with the aero machinists’ union on a ten-year no-strike pledge.
Ford also has some flexibility as to where it builds specific lines of vehicles.
America…FiretrUCK yeah!
While there certainly is an ethical difficulty, is there a legal one if the UAW offers a lot tougher deal to Ford than to the two companies in which it is part owner?
And congrats to Ford. Here’s hoping they can put together a string of quarters even more successful.
toxicroach :
November 2nd, 2009 at 12:09 pm
It’s a 997 million dollar profit for Q3— they are still in the red for the year.
Not to mention I seem to remember GM pulling off a similar profitable quarter amidst the red ink in 2005 or 2006. One quarter doesn’t mean the company is healthy. Just healthier than GM & Chrysler, which is a bit like saying I’m a paragon of rosy-cheeked health because I’m slightly better off than most people in the ICU.
While I agree with the post in general, the “profitable” quarter for GM was profitable through accounting tricks. They still spent more money than they took in, if it is the quarter that I think you are referring to.
To me, the fact that Ford made a profit on lower sales volumes speaks volumes about thier product. If they are able to sell their product at a profit while other companies are having to sell at a loss, they must have a product that is better in the consumer’s eyes than the competitions. If this continues, you can expect Ford to continue making a profit, barring additional outside interference that changes Ford’s costs relative to other “favored” manufacturers.
Buickman :
November 2nd, 2009 at 1:00 pm
we need to get off blaming the union for management mistakes. some fail to realize the back breaking work these people do and under what circumstances they operate. auto production is hard work, unlike comfy offices and cosy surroundings. give the workers a well deserved pat on the back, it’s them that make the quality story ring true, and on their shoulders that the actual work gets done.
And, there are plenty of out of work auto workers who would take what Ford is offering rather than not work at all. Unfortunately, union tactics of attacking “scabs” makes it impossible for auto manufacturers (among others) to hire qualified workers at a rate that reflects the current labor market. Wages should be reflective of the labor market not how much an orginization holding a monopoly on labor thinks they can squeeze out of a company without sending them into bankruptcy.
Congrats to Ford management and design engineers. I seriously doubt that the line workers employed by Ford made the difference between them versus GM and Chrysler.
Wasn’t it just a week ago that we were all worried about Ford’s cash burn and that they wouldn’t have enough money for next year? What a difference a week makes. I’m not saying they’re out of the woods yet but clearly they are making significant progress.
I understand that the union was tired of contract changes and had enough, but someone needs to talk some sense into them. Yes it looks like Ford is becoming profitable, but they are also going to continue to cut costs with or without the union’s help. I’m willing to bet within 6 months we’ll see some more plant closures and shift cuts.
Lumbergh21 :
The economics of a car plant are just different than your average boss. Scale is just different and with it you get a different boss/employee situation
fincar1 :
better business climate in South Carolina = lower wages
Hmmm,
I’m moderately happy… that FORD did LESS worse than the rest.
Then I heard that the KUGA might come to the US to replace the Escape, and form copies over at Mercury and Linc.
This news basically tells me, that Ford hasn’t learned YET and things are still in the shitter.
They are confused as to what to do with Mercury. The Escape is too big to be a compact (now equaling the 1st gen Exploder) with a big BIG damn gap between the tiny shit, and the Escape.
They COULD take a page from Honda’s playbook, and downsize the vehicle to make room for “something” between chicken shit (with CR-V Liberty, Kia Sportage X3 as competitors) and big dumbass useless shit.
Which in turn puts the Escape / (coming) Exploder and the Edge within 3-500lbs of each other. Not much reason to purchase either over the other.
NTM
Didn’t Ford mention they’d stop canning established vehicles, and stop throwing away money and marketing dollars?! (Witness Taurus DEBACLE)
SO..
Its a meh kind of day for them.
http://www.autoblog.com/2009/11/02/report-ford-kuga-could-come-in-lincoln-mercury-flavors-replac/
Nice start Ford. Remember that you have seen real improvements in quality and reliability. Don’t beancount you progress into the ground. My pile of fire sale Ford stock is counting on it. You are a part of my early retirement plan.
“charly :
November 2nd, 2009 at 7:41 pm…
better business climate in South Carolina = lower wages”
I’ll grant you that much, but that is far from the only difference. In my heavily unionized state of Washington, between the liberal Democrats in power and the lefty environmentalists it’s increasingly difficult, expensive, and time-consuming to get anything industrial built here lest any drops of oil or paint foul Puget Sound or lest the Dems miss out on a tax. In SC, the state government seems eager to help Boeing get a plant up and running quickly. And, along with the lower wages come lower house prices as well as most other costs of living. Remember that the Seattle area has some of the highest costs of living in the country.
Bear in mind, charly, that I like living in this state, and it hurts my feelings to see industries move out because of our poor business climate. This will hurt our state in the long run, and we may end up in a similar situation to the one California is facing now.
Accords –
I’m a big fan of the Escape, and would like to see it updated next with a nicer interior and a more modernized platform, but the Kuga is pretty nice too, and I can’t see both existing in the same marketplace. I imagine the next gen Kuga will strike a balance between the chunky SUV-lite looks of the current Escape, and the swoopy pseudo-Japanese looks of the Kuga.
As far as the size of the current Escape goes, it’s smaller and lighter than both the CR-V and the RAV4, and while it may offer comparable interior space to the first gen Explorer, it gets a hell of a lot better fuel economy, and everyone’s cute-utes have grown since the first gen.
I will admit that Ford’s SUV/CUV lineup is about to get a bit cluttered, but it makes some sense with either the Escape or the Kuga as the small crossover (vs the CR-V, Rav4, Tiguan, Sportage, Tuscon, et al), the Edge as the midsize crossover (vs the likes of the Venza, Murano, and Equinox), and the new Explorer as the large crossover (competing in the segment that the Traverse, Pilot, and Highlander play in now). That arrangement does make the Flex more of a niche product, but since it will share a platform with the Explorer costs will probably be kept down. The only true SUV in the Ford lineup will then be the Expedition, but that’s OK because that’s the best, and again, sharing parts with the F-150 makes the cost to offer it pretty slim.
As far as badge engineering goes, there is nothing wrong with it if it’s down well and the two badge engineered vehicles don’t cannibalize each other’s sales. One of GMs greatest faults with badge engineering was that not only did they share a platform across multiple price levels, but they had competing vehicles in the same segment. The Malibu, Aura, and G6 all stole sales from each other as much as from the competition. Lexus has been fairly successful offering badge-engineered products, the ES350 which is based on the Camry, and the RX350 which is based on the Highlander both sell very well. Currently the MKX, which is nothing more than an Edge with a nicer interior and a few extra luxury features is a sales success, as is the MKS, and MKT is off to a promising start. If you can differentiate the styling and offer enough value for the price increase in the luxury version a badge engineered product isn’t a bad thing.
Best of luck to Ford and it’s workers.
Obviously it’s not “over the line” yet, but in years to come Mulally’s leadership might be a case study in business turn-around.
I think Bill Ford and the rest of the family deserve some credit, for relnquishing control of most day-to-day operations to Mulally before it was too late.
Then I heard that the KUGA might come to the US to replace the Escape, and form copies over at Mercury and Linc.
Why is anyone treating this as news? Ford announced months ago that the Escape/Mariner would merge with the next-gen Kuga. Who cares if you call this the Kuga replacing the Escape or the Escape replacing the Kuga? It’s a new vehicle replacing both, and spawning a Lincoln derivative as well. (The existence of the Mercury version is still rumor, and contradicts earlier statements.)
As yet we have no idea what the styling will look like, or whether the Kuga and Escape versions will be twins. Personally I would not mind at all if the next Escape sheds some of its bland personality and takes on some of the style of the Kuga, as seems likely given the whole “one Ford” styling trend.
— And if I may be pedantic for a moment:
its = possessive form of it
it’s = a contraction meaning “it is”
It is going to be extremely interesting to see how Ford did during the non-CFC stimulative months, versus the CFC-laced ones.
We’ll know later today.
It’s nice to see they are reporting a profit, but they aren’t out of the woods yet – lets take a wait and see attitude towards this IMHO. I see a lot of improvement in their line up, but they still have the UAW parasite attempting to bleed them dry.
Not to mention C4C – we’ll know better by the end of the year…lets see how Q4 plays out for them.