Ford: Profitability Projections

By Richard Read

Despite the general unpleasantness that's plagued the auto industry for over a year, Ford (F) is doing comparatively well these days. In fact, given the gradually rebounding global economy and Ford's new strategic alliances in Asia, CEO Alan Mulally feels fairly optimistic about the next two years.

Mulally expects Ford to finish 2009 with a 16% share of the American auto market, based on estimated industry-wide U.S. sales of 10.5 to 11 million units. Although Ford hasn't posted an annual profit since 2005, Mulally says the company is on target to at least break even by calendar year 2011. The company recently instituted a $10 billion debt-reduction plan, which generated a $2.3 billion profit in the second quarter of 2009 (though that's an aberration for now).

Mulally's projections and Ford's future profitability -- indeed, a substantial portion of Ford's future, period -- will hinge on how well the company performs in emerging markets like China and India. It should be encouraging to Ford fans, then, that Mulally made his statements at the groundbreaking for a new plant in the Chinese city of Chongqing. The facility is a joint venture between America's Ford, Japan's Mazda (MZDAF,PK), and China's Chongqing Changan Automobile Company, and it will have an initial capacity of roughly 150,000 units. Presumably the factory will boost Ford's production of Asian-market vehicles like the Focus and Mondeo, as well as the new Figo model we mentioned the other day (see photo), which is targeted to India and other portions of the Asia-Pacific region.

Bottom line: things are looking up. For Ford, at least.

Comments

[Steve in TN:]

It's unfair that Ford has to compete with GM on an unlevel playing field with that company receiving lots of U.S. Govt. aid and discharging its liabilities during its short bankruptcy. I almost feel the treasury should give Ford a grant so they are not penalized for managing their company far better than GM.

Sep 25 02:22 PM

[User 491792:]

Steve, Ford's execs opted to stay out of US Govt. bailout package, Why they should get money now?.

Sep 25 04:13 PM

[a. palmer jr.:]

Get ready to start driving Chinese Fords! Why not use Chinese slave labor to build Fords over there and ship them over here, thus avoiding paying union wages for their products. I know, they say it's for the Asian market but if it works out, maybe a little at a time, they can lay off a few American workers then bring in a few Chinese workers....
The hope for American manufacturing is to arrest all the illegal immigrants in the country and force them to work on the American assembly lines for $.50 an hour plus room and board.

Sep 26 10:15 AM

[User 65103:]

Mulally is the man.So far he has been right on. I'm betting on his continued wisdom.

Sep 26 03:46 PM

[Ralph Hunkey:]

I have driven GM autos since I was a Kid......I am now 68 years old....Guess what....GM sucks.......I lost a fortune holding their stock......The payback will be with Ford or a foreign auto.....Al Gore can drive the new GM autos.....

Sep 26 04:49 PM

[qw:]

Ford does not need a bailout, but it should have a level playing field against GM and Chrysler. The US govt should get out of the auto business asap and let the marketplace handle the auto industry.
Mullaly seems to always under promise and over deliver, so the profitablity scenario is conservative and Ford will be profitable in 2010.

Sep 26 10:30 PM

[Tdot:]

I think Ford is thanking their lucky stars, and all the known gods of the very diverse workforce and the rest of the universe, that they did NOT accept government bailout money late last year. Ford saw what happened to GM and Chrysler when the government came to "help".

What started off as a request for few billion in "lunch money" loans exploded into a full house dinner bill for something approaching 100 billion, with both companies forced through bankruptcy, and a massive change of ownership. If the companies, shareholders, congress, and taxpayers had any idea last year what the ultimate tab would be on that party feast, the very idea would have been rejected as absurd.

Of course there still might have been a massive change of ownership - perhaps Fiat would have bought Chrysler outright, and GM might have been bought up by, say, Volkswagen. But it would have happened in the Free Market, and the Taxpayers would not have footed the bill other than through unemployment and other temporary benefits and "entitlements", but that is happening regardless!

What Ford needs is a level playing field, and a hold on unfunded government mandates. When the Local, State, and Federal Governments make up regulations out of thin air on CO2 and fuel economy mandates, which cannot be achieved profitably with current affordable technologies, then the same Governments need to foot the R&D bill and help set up the production facilities. T

he automakers will not survive unless the business of building automobiles is profitable. Once the automakers are able to sustain profitability, then the Government can back off on the "assistance" (technology and energy loans, etc.), and then gorge on the income and profit tax revenues.

Sep 27 08:50 AM

[BeachRider:]

Are we still arguing that Automotive TARP? The financial TARP has yielded quick profits for the US taxpayer, so far. GM and Chrysler both needed capital when the credit markets were as dry as the Great Depression of 1930. Suitor companies (like Fiat) wouldn't have had sufficient funds-access to salvage much-of-anything at the time. GM and Chrysler would have had to liquidate and push unemployment to much-more than the 35% that exists in Detroit today.

I agree that, if the US taxpayer is still holding a lot of GM in a couple of years, then the Bush-Obama TARP will be deemed a failure. OTOH, if the TARP investment returns a sizeable profit to the taxpayers, then this will be like the Financial TARP.

So far, so good with the financial TARP (though not ALL news was good news).

Sep 30 10:27 AM