Money Matters - Simplified

Ford on profitability track

Ford may have bucked the trend and may have reported profits but the automaker still faces a long, tough climb to the top of the growing green car dog-pile

Michigan, July 24: The Ford Motor Company (NYSE: F)needs to give a toast to its chief executive officer, Alan Mulally, for one; steering the automaker clear of harm's way and that to without bailout funds and two; for guiding it to the road of profitability.

The automobile manufacturer posted a $2.3 billion quarterly profit and shore up its market share by another 2 percentage points. The accomplishment is no mean feat given the fact that the entire automobile industry, the world over, is reeling under the pangs of recession.

Gains recorded as part of efforts to restructure its debt during the quarter were primarily responsible for the profits. Excluding these gains, Ford would have reported a loss of $424 million. It would have been much lower than the loss of $1.03 billion incurred in the comparative period last year.

Treading with caution
Mulally is not getting complacent though. He acknowledged that Ford has made good progress and its second-quarter results have beaten expectations.

However, the CEO is treading with caution. He said, “We have more confidence than ever that our plan is working, but we’re still losing money.”

Ford’s watchfulness stems from the fact that its Detroit counterparts General Motors and Chrysler have had infusion of funds by way of bailout funds and are fresh out of bankruptcy.

The roadmap
Ford also managed to reduce its cash burn rate significantly. It cash burn came down to $1 billion vis-à-vis $3.7 billion during the first three months of the year.

Shelly Lombard, analyst with Gimme Credit, said, “In its second quarter, Ford delivered exactly what we wanted to see — lower cash burn.”

John Wolkonowicz, an analyst with HIS Global Insight cautioned, “It’s not going to get any easier for Ford, and may get more challenging in the short term.” “But I think they are on the right track, and they have some very good products coming,” he added.

The Michigan based automaker claims that it will break even or post a profit by 2011. The company has sufficient liquidity to fund its plans, said Mulally, a former Boeing Co. executive.

In its endeavor to bag a bigger pie of the market share, Ford has put a lot of effort into making “green” products. To be launched in 2010 the automaker’s average fuel economy will “improve approximately 20 percent through the end of 2010 vs. 2005, and the company is on track to improve fuel economy by more than 35 percent by 2015”.