Ford Profits Soar Amid Economic Uncertainty

Amid the uncertain United States (US) economy, the earthquake in Japan and the ever increasing commodity costs, Ford Motor Co. must be doing something right. Ford’s profit rose during its second quarter performance and has posted a net profit for eight quarters in a row.

Ford is the only automaker that did not accept a bailout from the US government in 2009 even if it reported a net loss worth US$30 billion from 2006 to 2008. Ford cut jobs, sold its unprofitable brands and reshaped its lineups of SUVs and pickup trucks.

The results are impressive considering what Ford has gone through especially with external factors beyond its control such as rising unemployment and the housing mortgage meltdown.

Ford Verve
Ford Verve

Photo Credit: WikiMedia Commons

However, Ford remains cautious with its outlook and strategy recognizing the fragility of the automobile industry and the economy.

Ford is scheduled to begin talks with the United Auto Workers union for a new labor deal on Friday and is expecting US industry sales to finish at a low end this year.

It was only in North America where Ford’s profit improved. North America was stronger when compared to other regions and exhibited higher prices for vehicles which accounted for US$900 million in gains. Ford’s pretax profit in North America rose 0.5 percent to US$1.91 billion.

Ford’s net income fell to US$2.4 billion (59 cents per share) during the second quarter down from US$2.6 billion (61 cents per share). The reason for this was that Ford reduced its debt by US$2.g billion to US$14 billion. This lowering of debt saved the company US$700 million in interest payments during the first half of 2011.

Its revenue rose 13 percent to US$35.5 billion although analysts were expecting around US$31.6 billion.

Part of the company’s strategy is to return to an investment grade rating by major ratings agencies. Ever since the economic slump, Ford’s ratings have been below the investment mark and its last investment grade was in May 2005.

With respect to its Japanese rivals and other US automakers, Ford’s gap narrowed from US$25 to US$30 in 2007 and from US$5 to US$ 10 this year.

According to the Center for Automotive Research, Ford’s estimated auto production labor costs in the US are about US$5.1 billion yearly. Its profit was impeded by rising commodity costs related to higher oil prices. Prices of plastics, steel, aluminum, copper and other precious metals used in automobile production have experienced rising prices.

Nonetheless, Ford remains number two in the US market and had a 16.9 percent market share throughout the first half of this year. This is a few points lower when compared to last year’s 17 percent US market share.

Ford shares were down 1.5 percent at US$12.97 on Tuesday afternoon after it rose to as much as 2 percent in the morning. The S&P 500 index at the same time was down 0.3 percent.