Ford Motor Company on Monday announced that it had made a $997 million net profit during the third quarter and had significantly boosted its cash reserves. The announcement came as a surprise to many industry analysts who had underestimated the automaker’s profitability or predicted a net loss during the quarter. Buoyed by the latest numbers, the automaker said it anticipates the upward trend to continue and expects to be “solidly profitable” in 2011.
This year’s third quarter, which delivered a pre-tax operating profit of $1.1 billion for the automaker, marked the first profitable quarter for the automaker since early in 2008. Ford also wrapped up the quarter with a remarkable $23.8 billion in automotive cash; up $2.8 billion from the second quarter.
Ford attributes the much improved numbers to its new products, reductions in operating costs and significantly higher profits from its finance arm, Ford Credit. The report claims that Ford saw an increase in both sales and market share in July and August, in part as a result of the federal Cash for Clunkers program.
Ford CEO Alan Mulallay said, “Our third-quarter results clearly show that Ford is making tremendous progress despite the prolonged slump in the global economy.”
This year’s third quarter marked the first profitable quarter for Ford’s North American production unit since 2005. Overall revenue during the quarter, however, fell slightly to $30.9 billion from $31.7 billion during the same quarter of 2008. Ford attributes about half of last quarter’s North American sales to better net pricing of models including the F-150 pickup, Focus and Taurus and says that lower prices on raw materials combined with cost reductions added an additional $1.1 billion. Ford’s CFO, Lewis Booth, said the automaker also benefitted from reductions in dealer inventories along with increased market share and a broader mix of new vehicles sold during the quarter.
The announcement sent Ford stock higher by 8.3% to $7.58 per share on heavy trading. Analysts had predicted a loss of 12 cents per share.
In addition to predicting a “break-even or better” year in 2011, Ford also expects to post positive cash flow that year from automotive operations-related activities, which Lewis Booth characterized as “a huge deal.”
Although the automaker is positive about the longer-term, it remains guardedly optimistic about next year’s economic outlook. The automaker said that it will be able to make those predictions with greater accuracy once it has a chance to analyze the complete 2009 results.
Ford expects sales in European markets to decline substantially as government-backed incentive programs akin to the U.S. Cash for Clunkers program are phased out but expects domestic sales volumes to increase somewhat over 2009 levels. The automaker predicts total domestic sales to reach about 10.6 million by the end of this year. It has projected next year’s sales to reach about 12.5 million units. That figure is better than the predictions by U.S. new car dealers, made public last week.
Ford’s product line also performed well overseas with operating profits doubling year-to-year in Europe and the Asia Pacific / Africa markets delivering a pre-tax profit of $27 million during the quarter. Of all overseas markets, only Ford’s South America operations saw a reduction in net operating profits which fell to $247 million.
Some analysts warn that Ford’s ability to avoid the government bailouts and bankruptcies suffered by Chrysler and GM may now work against the automaker. The United Auto Workers union has given every indication that it will reject Ford’s request to change its contracts with the union in order to reduce costs and level the playing field with Chrysler and GM.
This past February, Ford entered into a revised contract with the UAW that reduced labor and associated costs to the automaker by approximately $500 million annually but now claims it needs additional concessions in order to remain competitive with Detroit’s other “Big 3” automakers. UAW workers have objected to the proposed contracts inclusion of a “no-strike” clause tied to wages and benefits as well as a proposed reduction of job classifications for some skilled workers. They have also expressed concerns over the contract’s provisions relating to production commitments and bonuses.
Ford was able to receive similar concessions this past weekend from the Canadian Auto Workers union. Those concessions include a wage freeze for approximately 7,000 union workers until September 2012. In exchange, Ford has committed to maintain most of its factory operations in Canada.