Ford’s Profit

How Luck and Savvy Helped Ford Improve Products and Profit

Ford was the only American automaker that did not get a boost from U.S. taxpayers as the economy was still looking for the bottom earlier this year. Now, Ford looks like a world beater. Today, it posted a surprising $1 billion profit for the third quarter. While the company does not expect a full year of profitability until 2011, Ford today raised its projection for that year to "solidly profitable" from "break-even or better." The good news on profits follows good news on products. On October 27, Consumer Reports said that "Ford has secured its position as the only Detroit automaker with world-class reliability" after the influential magazine gave 90% of Ford's North American models a reliability rating of average or better. "Ford’s sustained production of vehicles that are as dependable — or better than — some of the industry’s best dispels the notion that only Japanese manufacturers make reliable cars," the usually praise-averse magazine declared in its Cars blog. "Other than the Toyota Prius, the reliability of the four-cylinder Fusion and Milan ranks higher than that of any other family sedan. Both of those Ford… products continue to beat the Honda Accord and Toyota Camry, while the upscale Lincoln MKZ tops its rivals, the Acura TL and Lexus ES."

How did all that happen? Perhaps it was the same way that Ford managed to get by without loans from Uncle Sam — a bit of luck and a bit of savvy. In an August Knowledge@Wharton podcast, Wharton management professor John Paul MacDuffie said Ford was able to pass on the government's help because "the CEO [Alan R. Mulally] – who came from another industry [Boeing, in 2006], with some new perspectives — managed to fashion a strategy that certainly was partly lucky, but also partly savvy in terms of getting a hold of some credit for Ford" before the financial crisis. That was "borrowed money they could pour into new products well before the crisis hit." He noted also that Ford would be able to "capitalize on being the one company that didn't take government aid" at a time when the so-called bailouts were "largely very unpopular with the public."

On the other hand, Ford's success may be hurting its continuing effort to reduce labor costs. A new labor contract modeled on one approved by members of the United Auto Workers at GM and Chrysler was rejected by workers at Ford's U.S. auto plants, The Wall Street Journal reported this morning. "The sad truth, at least in part, is that the UAW workers are punishing Ford for positive earnings," said Wharton management professor Lawrence G. Hrebiniak. Had Ford forcast a loss for the quarter, "the workers probably would have bowed to the company’s concessions more readily." Hrebiniak worries that the vote may be an example of labor not seeing a bigger picture or longer time horizon. "Are memories so short that people can’t remember what the incessant demands on big steel in the U.S. did to the industry, right up to its collapse?"

The Journal reported that the automaker will continue talks with the union to find ways to cut costs, and may look at moving some production to lower-cost locations if it can't remain competitive in the U.S.

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