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Auto Industry on the Road to Recovery?

The auto industry signaled recovery after GM reported a sales gain and Ford announced an unexpected profit. Jeffrey Brown reports.

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  • JIM LEHRER:

    What's behind some good news for Detroit automakers?

    Jeffrey Brown has that story.

  • JEFFREY BROWN:

    Not long ago, bankruptcy and potential catastrophe — today, at least, some signs of recovery.

    GM posted its first monthly gain in auto sales since the recession began, up nearly 5 percent from a year ago. Ford reported gains, too, one day after it announced an unexpected third-quarter profit of $1 billion.

    We take a look now with Paul Ingrassia, an automotive writer. His latest book, "Crash Course," about the bailouts and bankruptcies in Detroit, will be published in January. And Louis Lataif, dean of the Boston University School of Management and a former top executive at Ford, he currently sits on the board of the Canadian auto parts maker Magna, which has sought to buy the European company Opel, a division of General Motors.

    Late today, we should report, the Associated Press said that GM has decided not to sell.

    Paul Ingrassia, I will start with you.

    And I want to start with Ford. It's the monthly sales gains, but also this surprise about profits. So, how significant is this? And what accounts for the good performance?

    PAUL INGRASSIA, author, "Crash Course": You know, well, it's very significant, Jeff.

    I think that it's not only profits, but also, more importantly, frankly, its positive cash flow. And a year ago third quarter, Ford had a negative cash burn of $7.7 billion, which was frightening. This year, in the third quarter, the positive cash flow was $1.3 billion.

    And just the week before, "Consumer Reports" gave Ford quality ratings across its entire model lineup comparable to those of Honda and Toyota, which have long been the industry quality leaders. So, there's lots of good news coming there. There's also some reality jolts, if you will.

    The company's bond rating was raised, but it's still deep into the junk bond territory. But it's a steady improvement in quality and steady management. And, frankly, having avoiding bankruptcy is paying dividends.

  • JEFFREY BROWN:

    Well, Mr. Lataif, just to fill in the picture a little bit more, as I understand it, Ford's revenues were actually down. So, the profits are really coming from cutting costs, I guess, from the plants and layoffs? Is that it? Or is it more car sales?

    How do you explain it?

    LOUIS LATAIF, dean, Boston University School of Management: Well, I think the car sales do contribute, but the finance part of Ford Motor Company has always been an essential part of their business model.

    And the financing arm did do well in this quarter. I think, as Paul suggested, there's lots to be encouraged about. Their products are more acceptable. The company has done a good job of restructuring.

    It is not overstating their profits, because they did mention that they don't expect to be fully profitable on an annual basis until probably a year-and-a-half from now. But this is certainly encouraging, in the face of all that's happened in Detroit in the last couple of years.

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