Ford Posts $2.6 Billion Second-Quarter Profit

July 23, 2010

Ford often gets a lot of undue credit for surviving the financial econo-storm without needing government aid--most forget that Ford actually ran out of cash before General Motors and Chrysler, but was able to get private financing because it happened before the lending landscape self-destructed. Returning to profit, however--and $2.6 billion of it, at that--does deserve some kudos.

So how did Ford manage to turn what was a $424 million loss in the second quarter of 2009 into an expected $2.6 billion reported today? The North American market did exceptionally well, with Ford North America posting a second quarter pre-tax operating profit of $1.9 billion, a $2.8 billion improvement from the second quarter of 2009.

Ford’s second quarter revenue, meanwhile, was $31.3 billion, up $4.5 billion from the same period a year ago. The company also ended the second quarter with debt from its automotive unit totaling $27.3 billion, down $7 billion in the quarter. The reduction included a $3.8 billion payment by Ford to the UAW Retiree Medical Benefits Trust, and a $3 billion repayment of Ford’s revolving credit facility.

Ford attributes its strong results to increased sales, which rose by 20 percent compared to the same period one year ago. With more sales of expensive cars, in particular, comes larger profit margins. The bargain-basement deals on economy cars leave little room to pad the bottom line, but more luxurious vehicles offer the chance to turn options packages, extra equipment, and higher base prices into measurable profits.

Additionally, building cars in the most common combinations of options and trim specifications means Ford is being more efficient. A full 80 percent of Ford's sales are generated on just 20 percent of the possible model combinations; focusing on building the most popular combos means vehicles don't sit on lots, eventually being sold for a steep discount--which works its way back to higher sticker prices and better bottom lines.

The question now will be whether Ford and the market in general can continue to sustain this growth--and whether we'll see similar profit figures from Chrysler and GM. With the all-new 2011 Ford Explorer to be launched on Monday and the pricing punch of the new 2011 Lincoln MKZ Hybrid, it certainly looks like Ford is on the right track.


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