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Ford profits
After refusing bailout, automaker pulls ahead
The company says it has benefited from a strong market share, decreased costs and the federal cash for clunkers program that rewarded drivers who traded in fuel-inefficient vehicles for new vehicles.
Ford was able to make progress toward two goals: cutting expenses and creating demand. The first accomplishment comes with a bit of a stinger. The automaker reduced its third-quarter costs by $1 billion - fortuitous, because its revenue for the same quarter was down $800 million. Those savings were achieved by laying off workers and reducing pension and retiree health-care costs.
When Washington was crafting bailouts for the other two giant auto manufacturers, those who objected to the government handout frequently cited the unsustainably high costs of union-negotiated job security and benefits. Manufacturers have argued that shutting down places a higher burden on employees than does paring wages and benefits; workers have countered that shareholders should not sustain their profits while ratcheting down employee compensation. In late October, Ford workers rejected a United Auto Workers agreement that would have further reduced Ford's labor costs. Canadian workers have approved concessions, which gives Ford some leverage.
In the last three years, Ford has closed 10 plants and cut 45 percent of its North American work force. Those are deep cuts that come with costs for the American public. What is good for Ford is a mixed blessing for the communities dependent on Ford and even for the nation, because those cost cuts have come at the expense of real people. The equal and opposite reaction to Ford's cuts - completely irrespective of the role of a union - is job loss and an increased dependence by some on government benefits.
The public has, at least in some small way, rewarded Ford for its refusal to accept government bailout money or to seek bankruptcy protection. Goodwill is a unique and sometimes illogical market force, and in this case, it seems to show that consumers see little personal benefit in GM and Chrysler's survival or in reducing the amount of federal money needed to keep them afloat. That may be a sign that the federal deficit has grown so large that Americans cannot imagine how to influence it; they are willing just to claim their small piece and let the system fend for itself.
Or, of course, their purchase of Ford vehicles, on their own and with their rebates, may signify that Ford is doing a good job of building cars and trucks that people want. The Associated Press reports the fuel-efficient Focus sedan and the Escape, a small SUV also available in a hybrid version, were among the top five sellers under the clunker program.
It is difficult to analyze how much of that demand can be credited to Ford and how much to federal rebates to buyers. The other way Ford has maintained its profits has been to take on debt, including $800 million in the third quarter, which casts that $1 billion "profit" in a different light. The company is banking heavily on widespread economic recovery.
A better-than-predicted profit report may look like recovery. It is indeed good news, but like other signs of an improving economy, this one may not mean improvement - or as many jobs - as this country needs.
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