How Ford Got Back to Profitability

Lessons for Detroit

Less than two years after the U.S. government bailed out GM and Chrysler to try to save the U.S. auto industry and Detroit from completely collapsing, the Ford Motor Company has reported a $2.6 billion profit in the second quarter of 2010. The company projects it will have more cash than debt by the end of 2011, an incredible milestone for a company whose troubles began well before the 2008 auto industry crisis. This marks the fifth consecutive quarter of profit for Ford and their highest quarterly profit since 2004. What's next for the automaker?

• Expect Slightly Lower Profits with New Products  Ford, The New York Times' Nick Bunkley writes, "said it expected to be profitable in the second half of this year and deliver even stronger results in 2011. It said, however, that second-half profit in 2010 would be less than the $4.7 billion it earned in the first six months because of seasonal changes in demand and new product introductions ... The company recently began selling its new subcompact car, the Ford Fiesta, and has several important model introductions on the horizon, including the Ford Explorer crossover vehicle and the Ford Focus compact car."

• Look To Ford's Financing Arm  Cato's Daniel Ikenson compares Ford's internal financing branch, which reported an $888 million profit this quarter, to GM's attempt to acquire an outside financing firm. "Is GM stealing a page from the Fannie/Freddie playbook? Well, apparently Ford and Toyota and the other big auto producers rely on their own captive financing units to make their vehicles accessible to those who wouldn't qualify for credit from third-party financers." He seems to think Ford's route is the wiser of the two: "at least those automakers have shareholders to discipline lending behavior that might lead to increased default rates.  They may be more risk-averse or at least risk-conscious than a company spending other people’s money, whose success happens to be in the Obama administration's best interests."

• Ford's Global Recovery  24/7 Wall Street's Douglas McIntyre declares the company's recovery "complete, if it was not already." McIntyre finds that Ford has big profits in every area: North America, South America, Europe, and Africa. "It is clear that Ford's recovery has not just taken root in its home market--it is rooted in every area around the world."

• Once GM Recovers, Ford May Face Trouble  The Big Picture's Matthew DeBord has a more measured take:
  

This is what it means to be Ford in 2010. You are in some respects the last man standing strong, but although your traditional Detroit rivals have been forced into retreat, one of them, GM, is going to back at some point, with a strong product lineup and, importantly, much less debt than you. Ford has been on a nice run. But given its debt burden, that run has been executed on a tightrope.

• Ford Still Faces Debt Problems  The New York Times' Nick Bunkley reports that "[e]xecutives said Ford would move into a net cash position by the end of next year but declined to reveal specific plans to pay down more debt. Ford carries considerably more debt than its cross-town rivals, which were able to wipe out much of their obligations through the bankruptcy process"