LITTLE ROCK — Ford Motor Co. demonstrated the growing strength of the U.S. auto industry Tuesday by posting a third quarter profit of $1.7 billion. That number jumped 69 percent from the same period a year ago and surpassed a record set in 1997.
The automaker - which unlike General Motors Co. and Chrysler Group avoided bankruptcy reorganization last year - benefited from cost cutting, gaining U.S. market share and selling vehicles for higher prices.
“Overall, we are doing better than we expected through the first nine months of the year,” said Alan Mulally,Ford’s chief executive, “and we expect to deliver solid profits in the fourth quarter and for the full year.”
Ford has reduced its level of sales-incentive spending at the same time buyers are adding options to their cars and spending more, according to Edmunds.com, the auto information company. Edmunds estimated that buyers paid an average of $30,636 for a Ford in September, slightly higher than a year ago and up 10 percent from five years ago.
“For a long time, they weren’t really in the car market very strongly, depending mostly on trucks and SUVs. Now they have good cars, and the car market is where the action has been in recent years,” said Jessica Caldwell, an analyst with Edmunds.
Ford’s profit equaled 43 cents a share and compared with earnings of $1 billion, or 29 cents a share, in the same period a year earlier. It was the automaker’s sixth consecutive profitable quarter. Revenue fell to $29 billion from $30.3 billion a year earlier, but the 2009 figure was before the company sold Swedish automaker Volvo to focus on its core Ford and Lincoln brands. For the year to date, the company has earned $6.4 billion.
The Dearborn, Mich., company’s profit topped its previous third-quarter record of $1.13 billion, set in 1997, even when accounting for inflation.
“The general perception of Ford four years ago was this kind of loser company in a loser industry,” said Bernie McGinn, president of McGinn Investment Management in Alexandria, Va. “Now people are buying Fords because it’s cool.”
Ford also announced that it would hire 500 new workers for a shift at the Chicago plant that makes the new Ford Explorer, its first significant hiring in years. And it has promised millions in new investments at various plants.
On Friday, Ford plans to use some of the cash it is generating to pay off the remaining $3.6 billion it owes to the United Auto Workers union retiree health-care trust, which will save it about $330 million in annual interest expenses. The automaker borrowed heavily to stay afloat during the recession and is working to pay back those loans.
The payment will reduce the company’s total debt to $22.8 billion, a net reduction of $10.8 billion from the end of 2009.
The company now expects to end the year with as much cash as debt, reaching the goal a year earlier than it had forecast. Its remaining debt will be more than Chrysler’s $11 billion and GM’s $8 billion because those two companies shed billions of debt while under bankruptcy protection. Ford borrowed $23 billion in late 2006 before credit markets froze, giving the automaker a cash cushion to withstand the recession and avoid bankruptcy.
“We are clearly ahead of where we thought we would be on improving our balance sheet and repaying our loans,” Mulally said. “This allows us to reduce our annualized interest payments by over $800 million.”
Ford’s American operations had an operating profit of $1.6 billion, compared with $300 million in the same period a year earlier. The company also was profitable in South America and in Asia, driven by gains in China and India, but lost money in Europe. It said it expected its European operations to become profitable in this year’s fourth quarter.
Much of the automaker’s success is coming from a string of successful new products, such as the Fusion sedan and the Edge crossover vehicle. Truck sales, especially government and business fleet sales of the F-150 pickup, also added to the quarterly profit, Caldwell said.
“This latest Ford story highlights a simple truth in the automotive business: Appealing product can sell in any market on its own merit, without major incentives,” said James Bell, an analyst with Kelley Blue Book, the auto-pricing information company.
Ford sales have risen 21 percent to 1.4 million vehicles through the first nine months of this year. That’s more than double the overall industry gain. Its share of the U.S.
market has grown to 16.7 percent from 15.2 percent - the largest jump of any automaker this year and keeping it well ahead of No. 3 Toyota, according to Autodata Corp. Despite its troubles, GM still leads in sales volume.
There are some signs of a more robust rebound in the U.S. auto market, which was up about 10 percent through the first nine months of the year.
Mark Fields, Ford’s president of the Americas, said Monday that U.S. auto sales hit an annualized pace of about 12 million vehicles in October, its best rate so far this year. Automakers will report their October sales results next week.
But Ford does face some challenges. A Credit Suisse analyst wrote last month that the automaker’s global pension funds were underfunded by $12 billion at the end of 2009 and that could worsen to $17.5 billion by the end of this year.
Raw materials such as steel have also become more expensive this year. And Chief Financial Officer Lewis Booth said Ford will likely incur more charges in the fourth quarter for the shutdown of its Mercury brand, which has cost $290 million so far.
Still, “Ford’s balance sheet is stronger than generally perceived, which along with strong cash flow should continue to position Ford to pay a dividend by 2012 at the latest,” Bank of America-Merrill Lynch analyst John Murphy, who rates Ford a “buy,” wrote in a note to investors Tuesday.Ford suspended its common dividend in 2006.
Ford shares Tuesday rose 21 cents to $14.36 on the New York Stock Exchange and have climbed 44 percent this year.
Information for this article was provided by Jerry Hirsch of the Los Angeles Times; Dee-Ann Durbin and Tom Krisher of The Associated Press; and Keith Naughton, Jeff Green, John Detrixhe, Mary Childs and Pierre Paulden of Bloomberg News.
Front Section, Pages 1 on 10/27/2010