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Howes: Ford’s $1 billion profit signals turnaround

November 3, 2009

Howes: Ford’s $1 billion profit signals turnaround

Surprising performance shows Mulally’s plan is working


In Ford Motor Co.’s surprisingly strong third-quarter numbers, namely a $1 billion profit, there are all sorts of people who could claim vindication.

It starts at the top.

The simple fact is that Ford wouldn’t be poised for a break-out — and the Ford family probably wouldn’t still control the company founded 106 years ago — had Executive Chairman Bill Ford Jr. and the board of directors failed to recruit CEO Alan Mulally three years ago. He’s driving an elegantly simple turnaround plan that is delivering profits in each of the automaker’s operating regions despite a deep global auto recession.

That is vindication.

Yes, Mulally and his core team (almost all of them Ford lifers) can claim signs of a legitimate turnaround, including the first operating profit in North America since 2005. Yes, Ford’s United Auto Workers members can trumpet the black numbers at the Blue Oval as proof of their wisdom in torpedoing another set of concessions.

But it’s the guy whose name is on the building and the outside directors who pushed him to woo an outsider to Dearborn from Boeing Co. that set in motion an industrial transformation now furnishing more compelling evidence in answer to a simple question: Can Ford compete?

With each passing quarter, each new financial statement and each new product launch, the answer appears to be an emphatic yes, whatever the asterisks about corporate debt loads, labor cost parity and the disadvantages of competing against cross-town rivals backed by the federal government.

Big? No, that’s huge.

Because it started with a plan and a vision for a new Ford that didn’t crystallize until a new CEO walked in the door. He took aim at distractions like Jaguar, Land Rover, Volvo, even Mazda, and conflicts like Ford’s regional silos; he galvanized existing leaders around the approach, cashiering very few; they used some $23 billion in borrowed money to finance a turnaround powered mostly by uncharacteristic discipline and well-executed cars and trucks.

And until Ford’s UAW members this week solidly rejected the third revision of the 2007 national contract — revisions patterned after those won by GM and Chrysler in bankruptcy, but which wouldn’t have cut Ford-UAW pay and benefits by one dime — the UAW moved each step of the way right alongside Mulally & Co.

Delivering $1 billion in profits doesn’t justify the union’s "no" vote so much as a) break decades-long tradition of "pattern" bargaining solidarity in Detroit and b) set Ford to be the "target" in 2011 because the UAW, by federally influenced agreement, cannot strike GM or Chrysler for years to come.

Whether or not that is the intent behind the UAW vote, it will be the result. That and yet one more piece of evidence that the more things change in Detroit, the more some things remain the same — but not all things, thankfully, as Ford demonstrated Monday.

Ford’s numbers are positive in Europe, Latin America, Asia-Pacific and North America, plagued as it is by what feels like continuing labor talks. Its market share, year-over-year, is up; quality and reliability surveys are running in the right direction; ratings agencies are upgrading their outlooks on Ford; new products, like Taurus in the States and Fiesta in Europe, are hot, suggesting the scheduled American launch next year of Fiesta may end up being of the right-place/right-time variety.

Even more important are the financial trends, albeit results produced with the considerable pain of job cuts, benefit reductions, plant closings and union givebacks. In the third quarter, Ford generated $1.3 billion in operating cash flow; the gross automotive cash hoard expanded to $23.8 billion; net pricing on new cars and trucks sold increased $1.9 billion, an impressive number. And the automaker is moving to refinance its heavy debt load.

Altogether, this is big, people. It’s positive. It’s good news for Michigan, for Detroit and for Dearborn, whose semi-barren commercial strip between Telegraph and the Southfield Freeway could be mistaken for a movie set used to film "The Decline of Flint." Most of all, it’s psychic encouragement that shows the downward spiral is not inexorable.

It didn’t look this way just one year ago, as Mulally sat alongside his counterparts from the UAW, General Motors Co. and Chrysler Group LLC and pleaded poverty to two congressional committees. He embarrassed himself, along with the others, by copping to riding his own private jet to Washington from Detroit. He declined to take a pay cut, as the others readily did, because he knew he didn’t have to.

But Mulally did it four months later in concert with a concessionary contract then approved by Ford’s UAW members. He took a 30 percent cut in base salary to $1.4 million and relinquished all bonus payments for 2009 and 2010. Salaried employees also lost 401(k) matching, bonuses and merit increases for this year and next, and saw their health care cost sharing creep up into the 30-plus percent range.

I bring this up because the third-quarter numbers and Ford’s revised pledge to be "solidly profitable" in 2011 likely will be interpreted by some as evidence that happy days are here again in Dearborn. They aren’t, unless you accept the premise that reverting to the ways of Old Detroit — celebrating like the game’s over even though it’s still the first quarter — is a wise reaction to current conditions.

It isn’t, yet. But Ford’s solid numbers do signal that there’s an effective model for turning around a Detroit car company, even if it is done in Dearborn.

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