Ford Stirs Hope of Car U-Turn

Surprise Profit Is Driven by Finance Unit, Market-Share Grab; Focus Turns to Toyota By MATTHEW DOLAN And JEFF BENNETT DETROIT -- Ford Motor Co. reported a third-quarter profit of nearly $1 billion, raising hopes the auto industry is starting to pull out of its deep slump. Ford's unexpected profit -- the result of renewed strength at its credit arm, vastly improved North American operations and the weakness of its Detroit rivals -- suggests the company's efforts to slash costs and improve its vehicle lineup are beginning to have an impact on the bottom line. Last week, Honda Motor Co. raised its outlook for the current fiscal year, saying its cost-cutting measures are starting to pay off, too. Ford's affiliate, Mazda Motor Corp., boosted its forecast as well. Bloomberg A Ford Motor vehicle is parked outside the company's headquarters building in Dearborn, Michigan, U.S. "We believe that the world is starting to recover. Over time, with the fundamentals getting better, the economy and the automobile industry will recover," Ford Chief Executive Alan Mulally said in an interview. After its earnings report, Ford said it aims to raise an additional $3 billion in cash and push back the maturity date of its revolving loan. The company plans to use a convertible-debt offering to generate $2 billion and sell off some of its shares to raise an additional $1 billion, the company said in a statement Monday. Ford is also seeking to delay the maturity of its $10.7 billion revolving credit to 2013 from 2011, the company said in a statement Monday. Ford has already secured lender agreements to delay about $6 billion. The move comes after Ford failed to win more cost-cutting concessions from the United Auto Workers. Rank-and-file members soundly defeated the concessions over the weekend, in part because of Ford's brightening financial outlook. Ford stock closed more than 8% higher in regular New York Stock Exchange trading, but dropped 4.5% to $7.24 a share after the market's close because selling stock can be seen as diluting the company's equity. Ford, the only one of Detroit's Big Three auto makers that didn't require a U.S. government bailout, reported net income of $997 million, or 29 cents a share, compared with a year-earlier loss of $161 million, or seven cents a share. Revenue fell to $30.9 billion from $31.7 billion. Most Wall Street analysts had predicted a loss for the quarter. The Dearborn, Mich., auto maker also revised its forecast, saying the company would be "solidly profitable" in 2011. It had previously said only that it would break even by 2011. Further clarification of the industry's state should come next week when Toyota Motor Corp. and Nissan Motor Co. report their earnings. In North America, a region where many auto makers including Toyota have been posting losses, Ford reported pretax profit of $357 million, not including special items. A year ago, the division had a $2.6 billion loss excluding special items. The North American operation last reported an operating profit more than four years ago. Ford's success in North America stemmed in part from the troubles of its two Detroit rivals, General Motors Co. and Chrysler Group LLC, which were reorganized in bankruptcy court, as well as the law of supply and demand. Ford's ability to decline government aid boosted its image with many American consumers, and its market share increased in the third quarter. The company had also kept its production in check so that it could keep prices firm and reduce the need for hefty sales incentives, which pumped up its margins. And it had planned to ramp up production in the early summer, which ensured its dealers had ample inventory when the government's "cash for clunkers" rebates caused a surge in sales. By contrast, GM and Chrysler had tighter inventories and were unable to get as much of a bang out of clunker deals. In the quarter, Ford's North American revenue rose 21% to $13.7 billion. "I think it's a clear indication of consumer confidence, not only in the product but in the manufacturer," said Tammy Davish, who owns 26 car dealerships, including Ford franchises, mostly in the Washington area. "I don't think GM and Chrysler fully understand how their troubles are helping Ford." Ms. Davish said her Ford dealerships -- she owns Chevy and Chrysler outposts as well -- can't get enough of the auto maker's Focus and Fusion sedans. Ford's lending arm, Ford Motor Credit, benefited from rising prices for used vehicles, reporting net income of $427 million, up from $95 million a year earlier. Auto finance companies such as Ford Motor Credit make bets on used-car and truck prices when they lease vehicles to consumers. After the leases expire, the finance company must take the vehicles back and sell them. Cost cutting helped, too. Ford exceeded its own goals, eliminating $4.6 billion in costs in the first nine months of the year. The largest chunk came from finding efficiencies in its manufacturing and engineering operations for a savings of $2.4 billion. "They're not reinventing the wheel for every new program, and that saves money," said Michelle Hill, vice president in the automotive group at the Oliver Wyman management firm. Changes to work rules now let union workers perform multiple tasks, allowing Ford to reduce the number of specialty workers and save time and money on the assembly line, she said. Analysts cheered Ford's results. Standard & Poor's Equity Research upgraded its opinion on the auto maker to buy from hold, and Moody's Investors Service raised its ratings on Ford and its finance arm one notch. Ford's debt load remains a concern, however. At the end of the third quarter, Ford had $23.8 billion in gross cash but total debt of $26.9 billion. The debt is expected to increase by $7 billion to $8 billion because of payments the company is scheduled to make to a new fund that covers the cost of retiree health care. And Ford still faces challenges in two of its biggest markets. Car sales in the U.S. remain sluggish. Auto makers expect to sell about 10.5 million cars and light trucks in the U.S. this year, well below the 16 million or more they were selling earlier in the decade.