Ford Posts First Profit In Quarter In 2 Years

Aston Martin Sale Credited; Outlook Is Hazy

Ford Motor posted its first quarterly profit in two years yesterday, surprising financial analysts and quashing talk of insolvency for the 104-year-old industrial icon.

At least for now.

Even as Ford officials were announcing that the company had earned $750 million in the second quarter, concern over weakness in the debt markets was not only driving down stock prices on Wall Street but posing a threat to the corporate restructuring in Detroit.

Over the past two years, automakers have soaked up billions of dollars in easy money. Lots of it came from private-equity buyout groups that scooped up the divisions and brands that automakers were lopping off to raise cash.

Last year, Ford turned to the debt markets to recapitalize its entire North American operation, with more than $20 billion in loans secured by its factories and intellectual property, including the company's blue oval logo. Much of this year's second-quarter profit, Ford officials said yesterday, came from the sale of its Aston Martin unit to a private-equity group. And company officials confirmed it was probable that Ford would sell its Jaguar and Land Rover brands and that it was exploring a sale of Volvo.

Along with raising cash, those sales would let Ford refocus on restoring its core business. "There is no doubt we are making progress" toward that goal, Ford chief executive Alan Mulally said yesterday during a conference call. "Going forward, our fundamental assumption is that we will be competitive."

But with signs now suggesting the debt market is stalling, analysts said Ford and the other Detroit automakers may be in for a rough ride.

Kevin Tynan, a senior analyst at Argus Research, a New York investment research firm, said that the markets could have trouble swallowing possible debt offerings related to the Jaguar and Land Rover sales. In addition, he said, tighter money might imperil a high-priority item on Detroit's restructuring wish list: a multibillion-dollar trust fund to pay the medical bills of retired union workers.

As part of labor negotiations this year, the Detroit auto companies are trying to persuade the United Auto Workers union to assume responsibility for more than $90 billion that the companies owe for health care and other benefits for UAW retirees. Automakers argue that restructuring those benefits will help bring U.S. employee costs in line with those at Toyota and other global competitors. At least some of the billions necessary to set up the fund would have to come from the debt markets.

"You wonder if those deals can get done," Tynan said. "The market is making it more difficult. The money may dry up pretty quickly."

Other automakers have already felt the pinch. This week, Chrysler postponed a $12 billion debt offering connected to its pending sale to Cerberus Capital Management, citing poor market conditions. The Carlyle Group has also run into problems with its $3.1 billion loan to acquire GM's Allison Transmission division.

Ford's announcement of a profit was unexpected. Analysts had predicted continued losses for the company. Ford lost $12.7 billion in 2006, and Mulally said that on a full-year basis the company still expects to lose money this year and next.

Ford sold fewer cars in the second quarter, but overall revenue was up 6 percent, to $44 billion, compared with the same quarter a year ago. Ford executives said they were able to cut back buyer incentives and keep prices higher in overseas markets, where demand for their cars strengthened.

Mulally said the second quarter results show that Ford's efforts to cut costs have taken hold. The company reported that plant closings, employee buyouts and other steps had trimmed $600 million in expenses over the past three months.

The second-quarter results highlighted the difference between Ford's North America division and its operations elsewhere. The North America division lost money in the second quarter, as foreign competitors continued to gain U.S. market share. Overseas, however, the news was uniformly good, as Ford divisions in Europe, South America and Asia-Africa all reported sharp increases in revenue and profit. Sales in China were up 22 percent for the first six months of the year.

Mulally said that even the North American result was encouraging: Losses narrowed to $279 million, compared with $789 million in the same period a year ago.

Staff writer Howard Schneider contributed to this report.