Why Ford Is Making Real Profit Again
Dearborn, MI carmaker will see production hiccups in Asia and Europe from Japan Earthquake, but North America humming.
Ford used to rely heavily on the profits from pickup trucks and SUVs to make the black ink run in Dearborn, MI, but the company's latest performance is due to a resurgence in small and mid-size cars that Ford has made profitable by aggressive cost cutting and creating global efficiencies that would make founder Henry Ford proud.
Despite the still sluggish economy that has left many car buyers on the sidelines, Ford beat expectations by posting profit of 61 cents a share, well above the Wall Street forecast of 50 cents. Revenue at the company climbed 18% to $33.1 billion.
"Our team delivered a great quarter, with solid growth and improvements in all regions [of the world], said Ford CEO Alan Mulally. "We continue to to accelerate our 'One Ford' plan around the world."
Mulally arrived at Ford in 2006. His "One Ford" plan refers to his focus on building up the Ford "blue oval" brand worldwide. To that end, Mulally has sold off Ford's European luxury brands -- Volvo, Jaguar, Land Rover and Aston Martin -- over the last four years. He has also shuttered Mercury.
Ford, under Mulally, has also emphasized building global cars -- cars that are sold worldwide with very few changes made continent to continent. That focus and those changes to Ford's product development system have created efficiencies and cost reductions the company arguably hasn't seen since before World War Two.
The lion's share of Ford's first quarter profit came from North America where profit, before taxes, rose 49% to $1.8 billion.
Ford's image has been improving with consumers, helping attract new customers, as well as getting customers to spend more per vehicle. TrueCar.com, a market research firm, reported that the average Ford vehicle sold for $31,862 in March, $541 higher than the year-earlier average of $31,321.
Sales of Ford vehicles are rising across the board. Fiesta, Fusion, Edge, Escape, Explorer and F-Series models rose 16% in the U.S. from a year earlier. The F-Series pickup trucks posted a 23% year-over-year sales increase in the first quarter, despite rising gas prices and a moribund housing market that is normally the life-blood of pickup sales.
Back in 2009 when General Motors and Chrysler needed tax-payer bailouts and government funds to assist it through bankruptcy re-organizations, Ford stayed above the fray, taking on debt, but staying independent. Meantime, the rising quality of Ford vehicles has been recognized by third party ranking firms and publications such as Consumer Reports and J.D. Power and Associates.
One of the big reasons Ford is surging is that, unlike GM and Chrysler, the company did not have to derail any of its new model programs in 2008 and 2009 the way the other companies did as they went through the bailout process. Ford is replacing its old models with new and refreshed designs at a faster rate than its cross-town rivals, and new models have traditionally pumped sales.
The economy has consumers holding onto their cars longer. The average age of vehicles on the road today is above ten years. But many vehicle owners reaching their limit and are coming off the sidelines to buy new cars, even if they are shopping for vehicles less expensive than the ones they are replacing.
As Toyota and Honda lose auto production this year in the aftermath of the Japan earthquake and tsunami, Ford is widely viewed as the company that stands to benefit the most in the U.S.
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