Tuesday, April 27, 2010

Ford Reports $2.1 Billion Profit in the First Quarter

Ford Fiesta
Ford will launch the Fiesta this summer - its first subcompact model to be sold in America since 1997. The Fiesta is the No.1 selling car in Europe, and is expected to hit 40 mpg in highway driving.

Wow. Recovery beyond our wildest dreams.

Ford today said it earned $2.08 billion, or 50 cents per share, during the first quarter of the year, providing fresh evidence that the Dearborn automaker’s turnaround plan is on track.

Ford’s profit also eclipsed its loss of $1.43 billion, or 60 cents per share, for the same January through March period last year.

The company also easily beat Wall Street’s expectations. Before special charges, Ford earned $1.76 billion, or 46 cents per share. Analysts surveyed by Thomson One Analytics expected Ford to report income, excluding special charges, of 31 cents per share, or nearly $1 billion.

The Dearborn automaker also raised its outlook for the year, saying it now expects to be solidly profitable this year. Until now, Ford had only said it expected to report a profit in 2010.

And for a very positive change, it's cars, along with trucks and SUVs, pushing these monster sales figures.

Through March, Ford’s U.S. sales of cars and trucks are up 36.7% compared with 15.5% for the industry. Sales of Ford’s cars increased 36.7% during the first quarter compared with a 19% increase for the industry.

Many outside our Michigan bubble may want to equate this turnaround to the wake-up call that the automakers received from the Crash of '08, but the reality is that Ford began this turnaround plan back in 2006. After introducing the Escape SUV hybrid in late 2004, Ford debuted the Fusion hybrid at the 2005 Auto Show with plans to have it on the market by 2009 - and they were right on schedule. Add to that the revamped Taurus, the Focus and Fiesta subcompacts, along with the traditionally strong truck line, and Ford finds itself poised to keep gaining market share with improved quality and a very diverse lineup.

GM is still struggling to find its place after bankruptcy, but it should be noted that even they were looking at developing new lines and hybrid technology as of late 2004. Were they too slow to adjust to the changing market in this last decade? Yes - but they were already moving in the right direction when the crash hit in '08. And even though they now are fighting for market share with four brands taken out of the equation, their sales in the first quarter are up as well - and today they are announcing $890 million in factory upgrades that are expected to preserve 1,600 jobs and create new jobs on top of that. GM has a way to go, but the national recovery should give them some solid ground to continue to perfect their product and delivery.

And let us not forget the concessions that the UAW made in the contract of '07. Many people sacrificed to put American automakers in this position, and that came well before the downturn in '08. I found myself wanting to quibble with the President's assessment of the auto industry in his address last week, especially after I discovered that I could use a Daniel Howes article for good rather than evil. Here is Howes in November of 2007, after the UAW forged these new contracts:

By cutting these deals now, in the fall of 2007, the Detroit Three and the UAW offer "soft landings" to thousands of hourly workers. They also limit the damage that could have tipped one of more of these players into bankruptcy -- and still could if the national economy tanks and sales nose-dive or if planned product offensives don't translate into rising market share.

But such doomsday scenarios are less likely today than even a few months ago because these deals give the automakers more financial flexibility and enable them to be more operationally competitive than they've ever been. In essence, the automakers and the union now have a common roadmap for achieving what some said could never be achieved -- a business model in the United States that could compete with the best Asian rivals and do it with American workers.

Long story short, changes were already taking place when the industry tanked, and today we are starting to see the benefits of the work that was in progress. What does this mean for Michigan? Dana Johnson, chief economist at Comerica Bank, is practically giddy in the latest forecast released yesterday.

Michigan’s economy should grow by 3% or more this year and its unemployment rate will drop below 12.5% by year’s end, according to an economic forecast released this morning by Comerica Bank’s chief economist.

“Looking ahead, Michigan should do considerably better for awhile,” Dana Johnson wrote in his latest Michigan Economic Brief. “The economic recovery will work in Michigan’s favor, as it has in the past. And the adverse structural trends are not likely to be as bad if the auto manufacturing sector is becoming more competitive.”

While Johnson believes that the state will once again lag in recovery after this initial spurt in auto sales, he also sees other industries emerging to take its place - proving once again that diversifying our economy is imperative when it comes to our future financial stability.

Johnson said that auto manufacturing will no longer power Michigan’s economic growth, unlike in previous decades. Due to the auto companies’ restructuring, only 3% of the jobs in the state are in auto and auto parts manufacturing, compared with 7% in 2000.

“New sources of economic leadership will be able to emerge so long as the car companies stop creating the huge headwinds that impeded the state’s economy over the past decade,” Johnson predicted.

Now imagine a Michigan economy that can maintain this competitive edge in the auto industry and see new growth there as well, combined with our efforts to diversify into renewable energy, advanced manufacturing, the entertainment industry, the ever-present needs in the health care field - all the other avenues and industries we are pursuing today - and we have the makings of a very bright future for Michigan indeed.

I never thought I would find myself in a position were I would want to defend the automakers - but here I am. Out of the ashes we can start to see the phoenix rising, thanks to moves they made years before the crash and the adjustments they made after, and that will in turn strengthen our position to attract growth in other areas - as long as we don't screw it up with cuts that will damage our quality of life and hinder our efforts to bring in new people and industries to Michigan. Ford made all the right moves by investing in its product line when times were tough, and we should do the same.

Thanks for leading the way guys. Keep up the good work.