Ford zooms back into the black
Cost cutting, 'Clunkers' credited for turnaround

By Peter Whoriskey
Washington Post Staff Writer
Tuesday, November 3, 2009

Ford, the only major American automaker to avert bankruptcy and spurn a government bailout, signaled its growing strength Monday, posting a third-quarter profit of about $1 billion and lifting hopes that the U.S. industry can recover.

The financial results marked the first time Ford's North American operations have been profitable since 2005, and the turnaround reflects the fact that the automaker has drastically cut costs, slashed tens of thousands from it workforce and produced more appealing cars, analysts said. The government incentive program "Cash for Clunkers," also provided a boost.

Yet Ford's recovery remains fragile. The United Auto Workers announced just hours after the earnings report that its members at Ford plants voted overwhelmingly to refuse to give up their right to strike on wages when the current contract expires in 2011.

"We haven't had a raise in five years," said Nick Kottalis, president of the local at the truck plant in Dearborn, Mich. "It's peculiar that Ford was asking for all these concessions while they were making all this money. A lot of the people on the line were asking, 'Was this all a big lie?' "

The union's stance is far from the biggest challenge facing the company, however.

Unlike General Motors and Chrysler, which went through bankruptcy to cleanse their balance sheets, Ford is burdened by more than $23 billion in debt and has billions in other obligations that are restraining its prospects. It was the crush of just such obligations that brought GM and Chrysler to the brink of annihilation earlier this year.

Maybe even more daunting, the demand for new cars in the United States remains weak. The U.S. market generated more than 16 million in sales during its peak a few years ago; this year it is forecast to run about 10 million. Next year it has been pegged at slightly more than 11 million.

"As long as demand is this low, it's hard for anybody to make money in the automobile business," said Louis E. Lataif, a former Ford executive who is now head of the school of management at Boston University.

Indeed, the general economic uncertainty has clouded Ford's view of the immediate future.

The company said it expects to return to "solid profitability" in 2011. But company officials stopped short of predicting results for next quarter or next year.

"We're just not sure, mainly about the strength of the recovery," Ford's chief executive, Alan R. Mulally, said on the conference call with analysts.

Ford reported a profit of $997 million (29 cents a share), for the three-month period, compared with a loss of $161 million (7 cents) a year earlier. An aggressive effort to cut costs helped the bottom line.

The profits came despite the fact that revenue was down $800 million from the same period a year ago, to $30.9 billion.

But over the past three years, Ford has closed more than 10 plants and cut 45 percent of its workforce in its North American division.

This quarter, Ford cut its automotive structural costs by $1 billion, the company said.

The proposed labor agreement rejected by workers would have given Ford even more control over plant costs.

Its provisions, which matched deals approved for Chrysler and GM earlier this year, would have changed work rules, imposed a wage freeze on new hires and, critically, would have imposed a "no strike" clause when the current contract expires in 2011.

But in a vote completed Sunday, union members overwhelmingly rejected the concessions, which had been approved by union leadership. It was the first time in at least several years that Ford members had voted to reject contract provisions, analysts said. The proposal would have given workers $1,000 each.

The union members "are essentially saving their strike weapon," said Gary N. Chaison, a professor of industrial relations at Clark University.

He said the vote to reject was "an embarrassment and to some degree a debacle for UAW leadership and for Ford. It's an embarrassment for the UAW because the workers didn't close ranks. And its an embarrassment to Ford because they went to the well too many times for concessions."

Analysts said it was difficult for Ford to simultaneously project itself as a strong company and ask the union to give up some of its rights.

"It really is hard to talk out of both sides of your mouth," said Kristin Dziczek, director of labor and industry at the Center for Automotive Research.

The primary challenge for all of the automakers is how to build cars that people actually want to buy.

GM chief executive Fritz Henderson repeatedly emphasizes the company's need to create better product lines. On Wednesday, Chrysler is slated to unveil a new lineup. According to analysts, Ford may have gotten the jump on its rivals in revamping its offerings.

The company's market share, which had steadily declined from 20.6 percent in 2002 to 14.9 percent in 2008, has rebounded slightly, according to data from Edmunds.com. So far this year, Ford's share has grown to 15.6 percent.

"There are no mysteries about how to manage a car company: You need to control costs and have great products. The trouble is how to actually do it," said Jeremy Anwyl, chief executive of Edmunds.com. "But along with the brutal human toll, recessions clear the mind."

Post a Comment

Comments that include profanity or personal attacks or other inappropriate comments or material will be removed from the site. Additionally, entries that are unsigned or contain "signatures" by someone other than the actual author will be removed. Finally, we will take steps to block users who violate any of our posting standards, terms of use or privacy policies or any other policies governing this site. Please review the full rules governing commentaries and discussions. You are fully responsible for the content that you post.

© 2009 The Washington Post Company