Looks Like Ford Had the Right Idea by Skipping Bankruptcy After All
So much for the supposed disadvantage that Ford (F) incurred by not declaring bankruptcy last year, like Chrysler and General Motors. Some analysts, including me, were concerned that Ford would find itself at a competitive disadvantage to its Detroit rivals, because Ford didn't start over with a clean sheet of paper like the other guys did.
But it's been more than a year now since Chrysler and GM went bankrupt and came out again, and Ford is well on its way to gaining market share for the second year in a row. Ford says that hasn't happened since 1993. Not only that, Ford announced today it had a third-quarter profit of $1.7 billion in net income, roughly a $700 million improvement over the year-ago quarter.
In a nutshell:
- Ford has been able to shrink itself fast enough.
- Its new products based on global platforms have proved to be cheap enough to build, and sufficiently popular.
- Ford has refrained from producing too many cars and trucks, so that it is capturing better prices with a higher level of features and options.
A couple of potential monkey wrenches: the recovery in U.S. auto sales is still awfully slow. A double-dip recession could undo a lot of the good Ford has accomplished. On the other hand, even a little lift in sales volume would raise profits even more.
Ford's other remaining vulnerability is that the way it avoided bankruptcy in the first place was by putting itself in hock a few years ago, back when car companies could still borrow money. Ford said today it is devoting a lot of its hard-earned cash to paying down debt.
All that's left for Ford to do is keep paying down debt, hang on, and hope the U.S. economy turns itself around faster than it's doing. That's still a lot less trauma than the other guys have suffered.
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Logo: Ford