- The Washington Times - Friday, January 29, 2010

Ford Motor Co. generated a surprising $2.7 billion profit last year and is now poised to perform even better in the wake of the extraordinary quality-control difficulties afflicting Japan’s Toyota, the world’s largest automaker.

Ford increased its U.S.-market share in 2009, its first such gain since 1995, in a battered auto market that forced its two U.S.-based rivals into bankruptcy. Ford’s 2009 profit, which was announced Thursday, followed three years of losses totaling more than $30 billion, including a record $14.7 billion shortfall in 2008.

“This is a really good story,” said John Wolkonowicz, an auto analyst at IHS Global Insight. “The key is, Ford made money in a horrible year, the worst in decades, unprecedented.” Mr. Wolkonowicz also partly attributed Ford’s success to an improved image with the public over its being the only one of Detroit’s “Big Three” not to have taken taxpayer bailout money.

Total U.S. vehicle sales plunged 21 percent last year, bottoming out at 10.4 million units, the worst performance since 1982 and the worst on record after adjusting for population, according to Sophia Koropeckyj, a managing director at Moody’s Economy.com.

“Ford made money in a down economy because it cut costs dramatically and increased its market share,” Ms. Koropeckyj said, adding that “Ford has also made tremendous strides in improving its quality over the past 10 years.”

Ford’s good fortune was announced the same week that Toyota Motor Corp. made a string of announcements sure to damage the company’s bulletproof reputation for quality.

On Tuesday, Toyota instructed its U.S. dealers to stop selling eight models, including the popular Camry and Corolla sedans, in response to increasing reports of gas-pedal defects that can cause the vehicles to accelerate unintentionally. Toyota announced Thursday that its recall would spread to Europe and China. Since last year, Toyota has recalled more than 7.5 million vehicles.

“Don’t believe for a second that this Toyota problem will not feed right into Ford’s pocket,” Mr. Wolkonowicz said, citing a recent review in “Consumer Reports” that ranked Ford’s quality in highly favorable terms.

“Ford is now well-positioned to benefit from the calamity that struck Toyota,” agreed Ms. Koropeckyj.

After increasing its U.S. market share by about 1 percentage point to 15.5 percent in 2009, Ford is within striking distance of overtaking Toyota, whose U.S. share last year was 17 percent, Ms. Koropeckyj said.

Already, both Ford and General Motors are offering $1,000 to customers who trade in 1995-2010 vehicles made by Toyota - its brands are Toyota, Lexus and Scion - as well as Honda and Acura vehicles, made by Japan’s Honda Motor Co.

Ford has undergone “a difficult restructuring” over the past four years after Alan Mulally arrived from Boeing to become Ford’s chief executive in 2006, Mr. Wolkonowicz said.

Mr. Mulally’s recovery plan streamlined Ford’s operations, instituted a new culture and made the company much more aggressive, positioning Ford to multiply its profits in coming years as the auto market rebounds, the analyst explained.

Under Mr. Mulally, Ford has downsized drastically, while increasing its emphasis on cars and crossover vehicles. The company has also jettisoned three resource- and time-consuming British luxury brands - Jaguar, Land Rover and Aston Martin - and is in the midst of shedding the Swedish Volvo brand.

Auto analysts agree that one of Mr. Mulally’s most crucial decisions shortly after he arrived at Ford was to negotiate a $24 billion line of credit with the company’s bankers in late 2006. The ailing automaker, which lost more than $12 billion that year, mortgaged nearly all of its unsecured assets, ranging from factories to the Ford name itself.

Obtaining access to that cash proved indispensable to its survival last year, when General Motors Corp. and Chrysler LLC succumbed to bankruptcy and began receiving taxpayer bailouts.

“In late 2006, the financial markets were wide open, and Ford negotiated a good deal,” Mr. Wolkonowicz explained. “When financial markets fell apart in 2008 and 2009, Mulally had the financial cushion to avoid bankruptcy.”

Ford used the money to fund the development of new models and underwrite its investment in single platforms, which could produce the same vehicles in factories around the world. The new Ford Focus, which Mr. Wolkonowicz said was “all the rage at this year’s Detroit auto show,” will arrive in dealer showrooms around the world in 2011.

Ford capitalized on the bankruptcy woes of its Detroit competitors to increase its market share last year.

“The American public said, ‘Hey, look at this company - the little engine that could. I’m enamored by this company who did not take my taxes in a bailout,’ ” Mr. Wolkonowicz said, explaining why Ford’s lineup attracted even more attention.

Ford’s $2.7 billion net profit last year was achieved despite the fact that the firm continued to lose money in its automotive sector, where its operating loss was $1.42 billion. However, its financial-services sector generated an operating profit of $1.88 billion. The combined result of both sectors was a pretax operating profit of $454 million.

The cumulative effect from numerous “special items” added $2.55 billion in pretax profits to Ford’s 2009 income statement. By far the biggest item was the $4.66 billion gain it realized from its “debt-reduction actions,” according to its earnings statement released Thursday.

Ford entered 2010 with a head of steam, reporting fourth-quarter pretax operating profits in Ford North America, Ford South America, Ford Europe and Ford Asia Pacific Africa.

Ford also reported Thursday that it expects to be profitable in 2010 and “solidly profitable” in 2011.

If Ford could make money last year, when total U.S. vehicle sales were barely above 10 million units, it should be in a position to make huge profits by the time the U.S. auto market fully recovers in 2012 and 2013, when IHS Global Insight expects U.S. vehicle sales to be 15.5 million and 16.5 million, respectively.

Moreover, while Ford and independent analysts expect its new Focus compact and its new Fiesta subcompact to be big hits, both Mr. Wolkonowicz and Ms. Koropeckyj pointed to Ford’s F-150 pickup, the profit-generating truck that has been the best-selling vehicle in the United States for decades.

According to J.D. Power’s 2009 Initial Quality Study, the “completely redesigned” F-150 showed “notable improvement.” J.D. Power reported that the F-150 tied as the “highest-ranked large pickup in initial quality” and the “most appealing large pickup.”

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