Ford (F) is supposed to be the weak sister of the Big Three. It does not have the financial backing of a hedge fund and friends the way that Chyrsler does with Cerberus. It does not have GM’s (GM) size, sales volume outside the US, or $9 billion in cost cuts already behind it.
But, Ford and its new CEO pulled off the improbable, posting strong earnings in the last quarter.
The car company reported a net loss of 19 cents per share, or $380 million, for the third quarter of 2007. This compares with a net loss of $2.79 per share, or $5.2 billion, in the third quarter of 2006.
On a pre-tax basis, worldwide Automotive sector losses in the third quarter were $362 million. This compares with a pre-tax loss of $1.9 billion during the same period a year ago. The improvements were more than explained by higher net pricing, lower costs, and improved volume and mix, partially offset by higher interest expense, and unfavorable changes in currency exchange rates.
Ford is getting more money for each car. Incentives are probably falling and margins growing. That can’t be beat. It means the company is moving closer to the economics of companies like Toyota (TM) and Honda (HMC) and the UAW contract should help.
Ford’s number improved sharply in Europe and South America, a sign that its overseas reveue is becoming more robust, a must in a global market where US car sales are slipping overall.
Finally, the company said it was on plan to make money. Looking ahead, the company’s progress in 2007 reflects it is on track to meet its goal of being profitable in North America and Total Automotive in 2009. The company also is on track to meet its North American cost reduction target of $5 billion by 2008 as compared with 2005. Progress is being made on achieving U.S. market share goals, and the company is ahead of its $17 billion cash outflow target for the 2007 to 2009 period.
Ford has done what few thought it could. Combining new strength overseas with better margins in the US, and the company make actually be completely rebuilt within next 24 months, especially if Jaguar and Rover are gone.
That is extraordinary.
Douglas A. McIntyre
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