Ford and the New 'Profitability'

Ford (F) actually lost a little under $500 million on its operations in the second quarter, but taking into account one-time debt reductions pushed the firm into the black for the three months to June. And that at a time when Ford's sales through the first half of the year were off 33%. Of course, General Motors and Chrylser had sales figures that were worse still, meaning that Ford gained market share over the first six months of 2009.

Ford still says that it will be burning cash through the rest of the year, though the rate is expected to slow. On the other hand, its share of sales may continue to grow, depending on how consumers treat the new versions of Chrysler and GM (GMGMQ.PK), newly emerged from bankruptcy.

Other things to consider—the replacement rate for automobiles hit record lows during the recession, suggesting that there's a major backlog of demand, and meanwhile, incentives for new purchases from the stimulus plan and a "cash for clunkers" bill included in a recent funding bill will help push a lot of wishy-washy consumers toward car lots in coming months.

So the automobiles industry may be in for a period of smoother sailing over the next few months. On the other hand, there may yet be far too much capacity geared toward the American market. GM and Chrysler survived the recession on life support, but the shake-out may not yet be over. Remember too that several foreign governments saved their automobile manufacturers from making excessive cuts in capacity. Given so much supply, it may be difficult for anyone to earn a sustainable profit.

This article originally appeared on The Economist.com

Comments

[cameroni:]

Ryan, can you define the "one-time debt reductions" that pushed Ford back into the black, please. You may know what you mean but it does no justice to your article to make a statement without clarifying the specifics. I like Ford but I don't follow it's business closely so I have no idea what you are talking about. I don't have time to read your mind.


On July 24th 2009 Ryan Avent wrote:

Ford (F) actually lost a little under $500 million on its operations in the second quarter, but taking into account one-time debt reductions pushed the firm into the black for the three months to June.

Jul 24 03:11 AM

[Paintguru:]

cameroni,

Ford did a stock sale during the 2nd quarter to raise capital to reduce debt. This accounted for a one time income, which was identified in the earnings statement. The important number in the continued operations number, which is the ~$500M loss number.

Jul 24 09:48 AM

[hoffman23:]

Keep an eye on GM. The newly introduced 2010 Chevy Equinox ( only available for 1-2 weeks) is hotter than hot. The dealers can't keep them in stock. And a big player in that category is Ford Escape. Chevy is going to eat Ford's lunch and Ford is going to lose big in that profitable category. So watch that cash burn rate. It might be increasing sooner than one might think.

Jul 24 10:04 AM

[zagrebzagreb:]

I'm long on Ford and a few other manufacturers, but I still cringe everytime I read another 'backlog' for automobiles argument... Yes, sure maybe. But what are we using as our consumption rate? The last decade or so saw demand artificialy inflated by cheap and stupid loan / lease agreements. That freebie to consumers and manufacturers is not coming back anytime soon.

Current consumption is close to 1967 levels, despite the fact that there are twice as many drivers on the road. And frankly, that sounds about right to me. In view of the incredible improvements in technology, I would expect most autos to last twice as long after 42 years of progress.

Jul 24 10:59 AM

[spawn44:]

GM, Chrysler. It won't matter to Ford even if these companies are able to make full recoveries. Industry car sales have been at record lows. Under Mulally, Ford has made the necessary operational cost cutting moves to make Ford extremely profitable with even an average uptick in car sales. Tire kickers will be left left holding the proverbial bag wondering what happened.

Jul 24 12:51 PM

[casey00001:]

Wow: Keep an eye on GM is like saying look over Barack Obama's shoulder. What they hell can they due the Gov't owns them 100% right now until they issue stock which will happen about the same time we have National Health Care. Which will be NEVER.


On Jul 24 10:04 AM hoffman23 wrote:

> Keep an eye on GM. The newly introduced 2010 Chevy Equinox ( only
> available for 1-2 weeks) is hotter than hot. The dealers can't keep
> them in stock. And a big player in that category is Ford Escape.
> Chevy is going to eat Ford's lunch and Ford is going to lose big
> in that profitable category. So watch that cash burn rate. It might
> be increasing sooner than one might think.

Jul 24 01:47 PM

[sethmcs:]

Ford has strong management, strong line-up and improving business climate. As long as they can hold down fixed costs, improving volume will result in improving cashflow and profit. Ford is in position to become America #1 car company. Toyota and Honda cannot compete with the yen under a 100 to 1 to the dollar. Remember Toyota lost more money than General Motors last quarter.

Jul 24 01:48 PM

[Steve in Gr...:]

"...a "cash for clunkers" bill included in a recent funding bill will help push a lot of wishy-washy consumers toward car lots in coming months..."

No. No it won't. As stupid as the bureaucrats are, at least they realized fairly quickly what an inane, horrible boondoggle "cash for clunkers" is.

"AP sources: Govt to suspend 'cash for clunkers'

"...Congressional officials say the government plans to suspend the popular "cash for clunkers" program amid concerns it could quickly use up the $1 billion in rebates for new car purchases..."

www.breitbart.com/arti...

Jul 30 10:34 PM