Breaking News: Ford Makes Money

Less than a year after his arrival, Ford Motor Company's CEO Alan Mulally announced that Ford had surpassed analyst's estimates and delivered on the unimaginable, making a profit for the second quarter of 2007. For only the second time in five years, has the Dearborn, MI., based company been able to turn in a financial statement that was not leaking red ink from the dire straights it found itself. Since Mulally's entrance as CEO of Ford last fall from Boeing, the company seems to be headed in the right direction with three consecutive quarters with measurable increases in key areas over last year.

With last year's mind-boggling failure with losing over $12.1 billion, Ford finds itself in a difficult position. With contract talks set to begin with the United Auto Workers Union in a couple of days, Ford has to receive wholesale concessions from its labor union in order to avert a near inevitable bankruptcy. Having one of the two highest labor costs in the auto industry along with neighbor, General Motors, Ford and Mulally have been aggressive and successful in ramping sales while slashing costs. However, it will all be for not if Mulally is not able to continue the transformation with the labor union as well as divesting some unprofitable commodities under the Ford umbrella.

Ford's research and development department has been the brunt of much of the criticism as analysts and consumers bemoan the innovation, or lack thereof in the new vehicles Ford has been rolling out. In 2005, Ford replaced one of its most popular vehicles, the Ford Taurus with the Ford Five Hundred. Despite improvements, brand recognition forced Ford to recall the Taurus to the assembly line in the 2008 model year, replacing the Five Hundred as well as the Ford Fusion, with the aptly named, Ford Taurus and Taurus X, model names.

Gaffs like the Taurus, in addition to the labor costs have been the noose around Ford's neck for the last fifteen years as its market share and consumer appeal were swallowed by Japanese brands, Toyota, Honda and Nissan. Today, the Toyota Camry is top seller in the US. Honda's Accord is not far behind. As Japanese designers and the lack of labor costs allow our foreign neighbors to build and sell a vehicle, American manufactures can only dream of.

It is estimated that each Ford vehicle has over $2,700 in added costs that Japanese manufacturers do not have which include health care concerns and other contract concessions. This gulf creates an environment where Ford is losing over $1,400 per vehicle while Nissan is making $1,800. That certainly makes Mulally's task a bit more difficult than increasing sales and slashing costs. In the last three quarters, Mulally has slashed over 12,000 salaried workers and 13,000 hourly employees. So, while the hole Ford has dug is deep, Mulally appears to be pulling the right strings to get Ford's momentum headed in a different, more profitable direction,

But with Ford making over $750 million in the second quarter, the possibilities for Ford are there. With a potential sale of Volvo being evaluated, Ford's Premiere Auto Group (PAG), its international unit of luxury brands including Volvo, Jaguar, and Land Rover saw their own financial position change, going from a $162 million loss last year to a $140 million profit this year. Some of that profitability is based on the weak dollar in the retail marketplace.

With an uncertain future, give Alan Mulally credit for at least trying. The previous CEO, William Ford III, had an unimpressive tenure at the company other than building a new football stadium for the Detroit Lions, which he owns. With Mulally making strategic business decisions that have looked good at this juncture, Ford has the potential to reestablish itself as a premiere brand. While it will still lose money during this fiscal year, Mulally's plan to get Ford to profitability by 2009 seems less a stretch every day.

With $35 billion in available credit and cash, Ford will not see bankruptcy or being an acquisition target for some time. So, Mulally will have the time to right the ship if the Ford board and executive committee give him the resources and time to implement his plan. Analysts are banking on Mulally, removing Ford's bond rating from junk status. The US needs Ford to be successful. Ford needs Ford to be successful.

Give Mulally time, Ford just made money.