Ford surprises with $997 million profit; sees profit in 2011

By TOM KRISHER and DEE-ANN DURBIN

The Associated Press

Ford, the only Detroit automaker to dodge direct government aid and bankruptcy court, surprised investors with net profit of nearly $1 billion in the third quarter and forecast a "solidly profitable" 2011.

Ford said Monday that earnings were fueled by U.S. market share gains, cost cuts and the Cash for Clunkers program, which drew flocks of buyers to showrooms this summer. Ford’s shares (ticker: F) rose 58 cents to $7.58 in afternoon trading.

The latest results signal that Ford’s turnaround is on more solid ground. The company lost more than $14.6 billion last year and hasn’t posted a full-year profit since 2005. While it made a profit in the second quarter, that was mainly due to debt reductions that cut its interest payments.

Ford reported third-quarter net income of $997 million. Its profit forecast for 2011 was a step above previous guidance of break-even or better for the year.

Ford’s key North American car and truck division posted a pretax profit of $357 million, the division’s first quarter in the black since early 2005. Ford cited higher pricing, lower material costs and increased market share for the improvement.

Excluding one-time items, Ford earned a profit of 26 cents per share compared with Wall Street’s projections of a loss of 12 cents per share.

Revenue dropped by $800 million. But Ford said it cut costs by $1 billion during the quarter through layoffs in North America and Europe, reduced pension and retiree healthcare costs and improvements in productivity and product development.

Ford still faces obstacles in its turnaround. On Monday, the United Auto Workers union said its members overwhelmingly rejected a deal that would have brought Ford’s labor costs in line with rivals General Motors and Chrysler.

Seventy percent of production workers and 75 percent of skilled tradesmen such as electricians and pipefitters voted against it. The union said it will not return to the bargaining table.

Ford said in a statement that it will keep working with the union to make sure the company stays competitive so it can keep making commitments to invest in U.S. factories.

Workers objected to clauses limiting their right to strike and freezing entry-level wages and felt that the company is healthy enough and doesn’t need further concessions. The rejected deal also would have changed rules so skilled tradesmen work in teams and perform more than one task.

Rejection of the deal isn’t likely to place Ford at an immediate cost disadvantage to its crosstown rivals because savings from the concessions are longer-term, said Gary Chaison, a professor of labor relations at Clark University in Worcester, Mass. Neither the company nor the UAW has released any cost savings numbers.

The third-quarter profit makes it extremely unlikely that the company will push to head back to the bargaining table before the current UAW contract expires in fall 2011, and union leaders are also unlikely to take another deal to the membership, Chaison said.

"I think the company has no credibility asking for concessions now, and I think the leadership is quite embarrassed for making a case for concessions," he said.

Chaison said Ford could make some noise about moving new-vehicle production to Canada, where union-represented workers on Sunday approved a package of concessions, but it’s more likely that Ford will live with the current contract until 2011.

The other area where Ford has a cost disadvantage is debt. Ford reported $26.9 billion in debt, up $800 million from the second quarter.

The company avoided the fate of Chrysler and GM by mortgaging its factories and even the familiar blue oval logo to borrow $23.5 billion before credit markets froze last year.

Ford didn’t quantify the impact of Cash for Clunkers, which offered buyers rebates to trade in their vehicles. The program helped Ford cut costly incentives and raise production.

It also won buyers; the fuel-efficient Ford Focus sedan and Ford Escape, a small SUV, were among the top five sellers under Clunkers. Ford sales climbed 17 percent in August thanks to the program.

Looking for comments?