Ford reported today reported a net profit of 31 cents per share, or $750 million, for the second quarter of 2007, quite a big surprise if we compare this to a net loss of 17 cents per share, or $317 million, in the second quarter of 2006.

At the same time, though confirming that it is in active negotiation to sell the Jaguar and Land Rover units, Ford denied that it has reached a deal to sell the brands to Indian automaker Tata, saying no decisions have yet been reached on the potential sale of the units. It admitted, as well, that it is conducting a “strategic review” of Volvo, which many will interpret as indicating that Volvo – which is profitable – is for sale, but that Ford’s in no hurry to sell it and will wait until it can get its price.
The second quarter Ford profit, which amounts to 17¢ per share, contrasts with a $347 million loss in the same period last year. 
The profit surprised business analysts, who had forecast a loss of $700 million for the quarter before “special items.” But, it appears they were very wrong: before “special items,” Ford made a $258 million profit, compared with a $116 million loss last year. Of the changes in income, $600 million was the result of cost cutting.
Ford also increased its cash reserves by $2.2 billion, to $37.4 billion.
The news takes a lot of heat off Ford’s new CEO, Alan Mulally. 
But there are interesting stories behind the news.
First, it makes you wonder what Bill Ford and past Ford management was doing before Mulally was hired. 

If Mulally was able to cut $600 million of unnecessary expense out of the Ford budget, why couldn’t it have been done by prior management? Think about that – Ford cut out $600 million in unnecessary expense for a single quarter, and Mulally accomplished that in one year. Last year, Ford lost $12.7 billion, but $9.9 billion of that was non-recurring, such as expense from plant closings and employee buy-outs. The operating loss, then, was $2.8 billion. If Mulally can cuts costs by $600 million every quarter, it would amount to $2.4 billion – almost the entire operating loss of the company in 2006. Granted, not all of that $600 million is operating expense, so it may be a one-time saving. But some of it is ongoing, so it will carry through to subsequent quarters. Mulally may have been picking low-hanging fruit, but at least he picked it. Previous Ford management appears not even to have known there was fruit in the tree.
Second, how is this going to sit with the UAW?
Even more than General Motors and Chrysler, Ford has been portraying itself to the union as nearly destitute, so much so that it requires drastic concessions from the union to stay afloat. Granted, Ford is still losing money in the United States. Granted, as well, that much of the cost cutting involved eliminating union jobs through buy-outs and closing plants. But, even so, the belief among union members that Ford’s problems are largely the result of mismanagement and that the workers should not have to pay the price for something which was not their fault.
Third, Ford still needs new products, which means it will need to make substantial capital expenditures. None of the earnings increase abroad came from new models. It came from currency exchange rate fluctuations and from selling existing models at higher prices. Some of those new models are already in the pipeline. If they sell, the consequence could be a dramatic turnaround in earnings and profits – one more reason for the UAW to take a skeptical attitude in the current master contract negotiations with the company.

Second-quarter and first-half highlights:

  • Strong performance in the J.D. Power and Associates Initial Quality Survey, with five segment winners - Ford Mustang, Mercury Milan, Lincoln MKZ and Mark LT, and Mazda MX-5 Miata - more than any other manufacturer.
  • Ford Edge recognized as "Highest-Ranked Midsize MAV" in the J.D. Power and Associates Automotive Performance, Execution and Layout (APEAL) Study.
  • Fifth consecutive year of improved manufacturing productivity as measured by the Harbour Report North America 2007.
  • Ford Edge the best-selling mid-size crossover in second quarter.
  • Ford Taurus, Mercury Sable and Ford Taurus X earned five-star crash-test ratings from the National Highway Traffic Safety Administration (NHTSA).
  • Ford earned the most Top Safety Picks from the Insurance Institute for Highway Safety (IIHS) in the company’s history, with Ford Edge, Ford Taurus, Ford Taurus X, Lincoln MKX and Mercury Sable taking top honors.
  • Strong Ford Europe sales - up about 5 percent in first half of 2007.
  • Record Land Rover sales - up 8 percent in first half of 2007.
  • Ford China sales up 22 percent in first half of 2007.
  • Achieved $1.1 billion in cost savings in first half 2007, including $600 million in the second quarter.
  • Reduced North America personnel by 6,400 in the second quarter.
  • Completed sale of Automobile Protection Corporation (APCO) and Aston Martin.
What do you think?
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