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Ford Motor Co. (NYSE: F) Takes Pole Position Among Automakers

Companies / US Auto's Oct 28, 2010 - 06:05 AM GMT

By: Money_Morning


Best Financial Markets Analysis ArticleDon Miller writes: Ford Motor Co. (NYSE: F) yesterday (Tuesday) furthered its lead among U.S. automakers, reporting record-breaking third-quarter profits.

The world's most profitable automaker reported record third-quarter net income of $1.69 billion, up 68% over the same period a year ago. The company also said it is paying down debt faster than planned as new models boost its U.S. market share.

Excluding some items, profit was 48 cents a share, beating the 38-cent average of 12 analysts' estimates compiled by Bloomberg. By comparison, the automaker recorded income of $997 million in last year's third quarter and adjusted per-share profit of 26 cents.

"Our performance through the first nine months has clearly exceeded our initial expectations," Ford Chief Financial Officer Lewis Booth said in a statement. "We are now in a period where we are focusing on growing the business profitably around the world following the hard work that has been done by the entire Ford team to fix fundamentals."

Chief Executive Officer Alan Mulally has sparked a turnaround at Ford by emphasizing quality and cutting costs. Ford, the only major U.S. automaker to avoid bankruptcy, increased market share of U.S. light-vehicle sales in the quarter to 15.1%, up from 13% just two years ago.

"Ford has elevated its brand," Jessica Caldwell, director of pricing and industry analysis for automotive researcher told Bloomberg. "They're attracting a more discerning buyer who has more income and can afford more options."

Buyers of Ford cars and trucks paid an average of $30,636 per unit in September, up 10% from five years ago, as they piled on options like voice-activated telephone and stereo systems, according to Santa Monica, California-based Edmunds. That's the highest average price Edmunds has reported for Ford since they began recording the data in 2002, Caldwell said.

That echoes a report in April by Executive Editor William Patalon in Money Morning, which noted that Ford is setting a winning strategy by stabilizing its product line while expanding in international markets.

"By the end of 2013, at least seven Ford vehicles will be built on 'global' platforms, meaning that the basic designs will be the same from one country to the next with the only differences being due to safety or environmental regulations, or perhaps some detailing differences that are related to different customer preferences" Patalon wrote. "That's a strategy that will enable Ford to control costs, shift production around to take advantage of currency swings, and streamline its development programs. In short, it's a winning global formula."

Even in the face of a sluggish U.S. economic recovery, Ford is on track to have one of its strongest years ever thanks to an expanded product line that is attracting both large vehicle and subcompact car buyers.

"The important thing is the company continues to do well in the key U.S. market," Morningstar Inc. automotive analyst Dave Whiston told The Wall Street Journal. "Improvements in volume and pricing are helping Ford generate cash which can then be used to pay down more debt and eventually get an investment-grade credit rating."

Ford supported its case for a credit upgrade by paying down its revolving credit line by $2 billion in the third quarter. The company also will close out the last of its health-care trust obligations by making a cash payment of $3.6 billion on Friday.

Those moves will reduce the company's overall debt to $22.8 billion, down about $4.5 billion from the end of June.

Ford plans to lower its debt even further by offering two convertible debt securities in the fourth quarter. Holders will be offered a cash premium as an inducement for them to convert the debt into shares of Ford common stock, The Journal reported.

In the past five years, Ford has cut its North American work force nearly in half and closed or made plans to close more than a dozen U.S. manufacturing factories. Ford currently employs about 72,000 workers in North America and 178,000 worldwide.

In addition, the company has significantly reduced the extremely generous labor contracts of unionized workers who have remained at Ford and the other U.S. carmakers.

But cost cutting and quality improvements aren't the primary reason for Ford's revival, according to Mulally.

For many customers, its refusal to accept government bailout money or seek protection in bankruptcy court is what separates Dearborn, Michigan-based Ford from the other "Big Three" automakers. Mulally's decision in 2006 to take on billions in debt was also a key factor in funding the company's turnaround plan.

"The response that we received because we did not ask for the precious taxpayer's money has been tremendous," Mulally said.

Investors have also reacted favorably to the company's strategies. Ford shares are up 43.6% so far in 2010.

Source :

Money Morning/The Money Map Report

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