Ford's Surprise Profits
Monday, November 02, 2009SUSIE GHARIB: A big surprise from Ford today, a quarterly profit of almost $1 billion. Those earnings are the first for the Detroit auto maker in nearly two years and that's partly because of cash for clunkers. Excluding special items, Ford earned $0.26 a share in the third quarter. Analysts had been expecting a loss of $0.12. Revenue came in at about $31 billion and Ford's U.S. market share rose to 14.6 percent, benefiting from declines at General Motors and Chrysler while they were dealing with bankruptcy. Joining me now from the CME Group in Chicago, our Midwest bureau chief Diane Eastabrook. Diane?
DIANE EASTABROOK, NIGHTLY BUSINESS REPORT CORRESPONDENT: Hi Susie. Well as you said, Ford did make a U-turn in the last quarter thanks to cost cutting, improved market share and the government's cash for clunkers program. Ford CEO Alan Mulally says the company's strong third quarter paves the way for solid profits within two years. He also told shareholders quote, while we still face a challenging road ahead, our One Ford transformation plan is working and our underlying business continues to grow stronger, end quote. IHS Global Insight auto analyst George Magliano thinks Ford is headed in the right direction.
GEORGE MAGLIANO, AUTO ANALYST, IHS GLOBAL INSIGHT: They have really done a lot with their product offering and the consumer has viewed them more favorably than GM or Chrysler because they didn't take the government money. And so, they've been doing it all along even before cash for clunkers.
EASTABROOK: But Magliano says Ford faces significant potholes on the road to solid profits. One is the weak economy. Magliano thinks rising unemployment and fewer stimulus dollars could keep many buyers from dealer showrooms. Another is the United Auto Workers Union. Late today, hourly workers rejected contract concessions negotiated by Ford and the UAW. Magliano says those concessions are critical to Ford's turnaround.
MAGLIANO: The reality is, if they don't make the concessions, Ford is going to go back to bleeding and it's going to make it very difficult on them and it's also going to make it very difficult on them to keep a lot of the programs they want in the United States.
EASTABROOK: And Susie as you probably recall, both General Motors and Chrysler have got concessions from the UAW while they were in bankruptcy. Ford says it needs those concessions as well in order to compete with those two domestic competitors.
GHARIB: Well, Diane, what are the chances of Ford getting those concessions now that it's making money? Doesn't that give the union a bargaining chip?
EASTABROOK: Absolutely. In fact, the UAW today said that the good financials that Ford reported today were part of the reason that the rank and file voted down these concessions. They said that they would not go back to the bargaining table, but obviously if the financials would deteriorate from here, they might be encouraged to go back. We'll have to wait and see.
GHARIB: Another issue about where things are financially with Ford, a lot of headlines today about that billion dollar profit, but Ford also has a lot of debt, something like $27 billion. So how does that play into its forecast? Isn't that a serious problem?
EASTABROOK: It is a problem. As you probably recall, they mortgaged a lot of assets to keep themselves out of bankruptcy. Analysts say if the economy continues to improve, if the credit markets continue to improve and if the companies can sell vehicles, then it should be able to go back and refinance that debt. But there are a lot of ifs there.
GHARIB: A lot of ifs and in terms of sales, I know that the October vehicle sales numbers are coming out tomorrow. What should we expect from the numbers as far as Ford is concerned?
EASTABROOK: We don't know yet about Ford. Overall we know that the situation in October was a little bit better than September. There was a little bit of hangover after cash for clunkers. People really didn't go into showrooms. We saw sales drop off to about 9.5 million units on an annualized basis. Analysts think tomorrow we're going to see it around between maybe 10 and 10.5, a little bit better but certainly not where we were a few years ago when the auto industry was selling about 16 million units a year in the United States.
GHARIB: I know your focus is going to turn to Chrysler on Wednesday because you are going out to Detroit to meet with Chrysler executives and to learn about what Fiat's plans are for Chrysler. What do you expect them to say? What are you hearing as a preview?
EASTABROOK: What we are hearing is the Fiat people are going to be coming and talking about the kinds of products that they are going to be bringing to the United States. We think there is going to be a small car similar to the Minicooper that will probably be built in Mexico. We are hearing that they are going to be bringing Alpha Romeo back to the United States. They should -- the Fiat people would probably also be talking about what Chrysler and Dodge products they are going to be ending production in the United States, so a lot of information. We're really looking forward to it.
GHARIB: Very interesting stuff and we're going to be looking forward to your report on Wednesday. Thanks a lot, Diane.
EASTABROOK: Thanks, Susie.
GHARIB: Midwest bureau chief Diane Eastabrook.
