- The Washington Times - Friday, July 24, 2009

America’s oldest auto company, given up for dead two years ago, has taken the inside track on its competitors and done it without taxpayer help.

The only one of the Big Three automakers not to accept a federal bailout, Ford Motor Co. surprised Wall Street on Thursday with a $2.3 billion profit in the second quarter, bouncing back from an $8.7 billion loss one year earlier - the worst loss in Ford’s 106-year history.

Thursday’s results followed four straight quarterly losses.

Ford lost money on an operating basis - the profit was driven by debt reduction and other accounting gains - but its sales and earnings still far exceeded investors’ expectations.

Analysts said that the company’s nimble financial moves, cost cuts and strong product lineup will enable it to compete in the long run with General Motors Corp. and Chrysler LLC even though their debt loads have been slashed through federal bailouts and bankruptcies.

Analysts also said Ford has increased its market share as GM and Chrysler went through painful bankruptcies, a gain that some attribute to Americans voting against the bailouts with their car-buying dollars.

“Ford’s lineup of vehicles now is the best they’ve ever had,” said Jesse Toprak, senior auto analyst with the car-shopping Web site Edmunds.com. “We can’t attribute all of their success to the miseries of the other two.”

John Wolkonowicz, senior auto analyst at IHS Global Insight in Lexington, Mass., said Ford “is surprisingly not that far away from [achieving] the streamlining that was done at GM and Chrysler, and they did it without bankruptcy.”

Mr. Wolkonowicz said Ford was able to avoid a bailout because it mortgaged its trademarks and buildings to get a $23 billion loan in 2006.

It was one of the first acts of Chief Executive Officer Alan Mulally, the outsider brought in from Boeing to save the struggling automaker. He succeeded Bill Ford, great-grandson of company founder Henry Ford.

“I would credit Mulally with the turnaround, definitely,” Mr. Wolkonowicz said. “I think he’s done wonders at Ford. They were basically in the same situation as the other two.

“They were able to get very similar concessions [from the United Auto Workers union] and they were able to restructure a lot of debt,” he said.

The analyst also said Ford’s gain in market share would carry long-term benefits.

“It’s going to diminish longer term, but the funny thing with car market share, when you make a switch of a brand and you do well with it, you’re probably going to stay there,” Mr. Wolkonowicz said.

Detroit’s quality problems in the 1980s created a generation of drivers loyal to cars made by Japanese companies such as Honda and Toyota, he noted.

Mr. Toprak said that while Ford may be carrying more debt than GM or Chrysler, it now has greater product momentum.

“For the next year or two Ford will have the most new model introductions of the domestic automakers, which will mean that they’re going to be able to continue to grab attention and get people in the showroom based on their products alone,” he said.

Ford swapped stock and cash to reduce debt by $10.1 billion earlier this year, cutting its interest payments by more than $500 million for the quarter.

Without the debt reduction and other items, Ford reported an operating loss of $424 million - still less than a half of what analysts expected.

Revenue fell 40 percent from a year ago to $27.2 billion but exceeded estimates of $24.8 billion.

Chief Financial Officer Lewis Booth repeated the company’s target of an operating profit in 2011.

“The plan is working,” he told reporters Thursday at Ford headquarters.

He wouldn’t comment on whether Ford will use the improved results to sell more shares to cut debt.

“We’d obviously like to improve our balance sheet,” Mr. Booth said. “The focus is on improving the business.”

Mr. Toprak and Mr. Wolkonowicz said Ford is selling higher-profit vehicles and paying less in incentives than GM and Chrysler.

Consumers bought “a very profitable mix” of Ford cars in the quarter, Mr. Wolkonowicz said, including trucks and luxury cars.

“Ford is not going to make it or break it on [it’s recent shift toward] small cars,” he said. “The government is very misguided on that whole concept.

“Ford is going to make it or break it based on larger, more profitable vehicles like the Explorer, which comes out in the fall of 2010. It does what the current one will do but it will get 20 to 25 percent more fuel economy,” Mr. Wolkonowicz said.

Mr. Toprak said Ford spent just $6.5 billion last year on incentives, compared with $10.5 billion for GM, which only partly reflects the fact that GM sells more cars. Chrysler, which sells significantly fewer cars than Ford, spent $5.6 billion on incentives last year.

“Ford has done really well while spending less than GM and Chrysler on incentives, which speaks to the fact that they were able to concentrate on selling the car and not on selling the deal,” Mr. Toprak said.

Ford shares surged 60 cents, or 9.4 percent, to $6.98 on the New York Stock Exchange, their largest gain in nearly three months. The stock has more than tripled this year.

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