MICHELE NORRIS, host:
From NPR News, this is ALL THINGS CONSIDERED. I'm Michele Norris.
MELISSA BLOCK, host:
And I'm Melissa Block.
Today, Ford Motor Company announced its 2010 yearly earnings. The company made $6.6 billion dollars in profits. That makes it Ford's most profitable year since 1999.
Despite the good news, the numbers were not quite as rosy as many industry analysts had hoped. The company's stock actually fell today, and as NPR's Sonari Glinton reports, Ford still has a long road ahead.
SONARI GLINTON: Imagine for a moment that car companies were movies and the earnings season was the Academy Awards. The Car-Oscar ceremony would probably go something like this.
Unidentified Man: The nominees are: General Motors, Ford Motor Company, and Toyota. And the envelope please? I can never get these things open. With more than $8 billion, the winner is Ford Motor Company of Dearborn, Michigan.
GLINTON: Then enter the happy CEO, Alan Mullaly.
Mr. ALAN MULLALY (Chief Executive Officer, Ford Motor Company): Oh it's fantastic.
GLINTON: That's probably how it would go, and it's sort of how it did when Ford announced its earnings today. Ford made over $8 billion before taxes and interest and about $6.6 billion after. That means Ford employees will get profit-sharing checks. And it means it's been the best year for the company in more than a decade. Again CEO Allan Mullaly speaking in an interview.
Mr. MULLALY: You think about back then and now, this is a complete transformation of Ford.
GLINTON: 1999 seems like a lifetime ago, and it was for the auto industry. It was before gas prices spiked, before the economic collapse and before the deep recession. But while the whole industry had a tough decade or so, things turned out worse for Ford's competitors.
Gary Bradshaw is a portfolio manager with Hodges Capital Management. He says Ford was able to capitalize on its competitor's misfortunes.
Mr. GARY BRADSHAW (Portfolio Manager, Hodges Capital Management): The consumer has come back in a big way. At the time that, you know, General Motors has stumped their toe by going into bankruptcy, and that's left a sour taste in the consumers mouth, and then the issues that Toyota had.
GLINTON: Bradshaw and others say Ford has been benefiting from a halo effect, scooping up customers that have fled the other automakers. They have streamlined, selling off foreign luxury brands and severely cutting dozens of vehicle brands. That reduced costs and added to the company's bottom line.
But, and there is a but, Ford still has some problems. For example, Ford needs to attract more customers overseas, especially in China, where it sold only a half million vehicles. And instead of taking the bankruptcy route, Ford went into debt, a lot of debt.
David Whiston is an investment analyst with Morning Star. He says that debt poses a problem.
Mr. DAVID WHISTON (Investment Analyst, Morning Star): Yes, their credit is less than ideal. And it's getting better, though, which is good. But it's not there yet. So they do pay a higher funding cost than, say, Toyota.
GLINTON: Ford executives say they expect to pay off the debt this year. All the U.S. car companies have debt, but Ford also has a problem that GM and Chrysler don't have: union negotiations.
Mr. GEORGE MAGLIANO (Analyst, HIS Automotive): Ford is the only company that does not have a no-strike clause.
GLINTON: George Magliano is an analyst with IHS Automotive. Because of deal cut with the government during bankruptcy, GM and Chrysler have no-strike clauses in their contracts with the United Auto Workers union. Magliano says Ford's profits could put it in a tough negotiating position.
Mr. MAGLIANO: It is paramount that they get this union contract nailed down and get it nailed down peaceably.
GLINTON: Meanwhile, the investor Gary Bradshaw say Ford faces another potential problem: higher gas prices.
Mr. BRADSHAW: And that's going to weigh heavy on the consumer's mind again. And will he be buying the new F150 trucks or the diesel trucks where, you know, they got profit margins?
GLINTON: Bradshaw and the analysts agree that Ford is on its way to health, that is if the economy doesn't get in the way.
Sonari Glinton, NPR News Detroit. Transcript provided by NPR, Copyright NPR.
Ford Motor Co. earned $6.6 billion in 2010 — its highest profit in a decade. Still, the company is not out of the woods. It's stock price dropped 13 percent on Friday, it's trying to climb out of debt, and it could face tough union negotiations just as it's trying to secure a foothold in the Chinese car market.
Ford Motor Co. announced its biggest profits in a decade on Friday.
The company earned $6.6 billion in 2010, a substantial increase from the $2.7 billion it made in 2009.
Alan Mulally, Ford's CEO, described the earnings as "fantastic."
But despite the upbeat news, Ford's stock price fell more than 13 percent on Friday. Even though 2010 was the company's most profitable year since 1999, many analysts had hoped the numbers would be even better.
The Man Behind The Turnaround
Mulally came to the automaker from Boeing in 2006. Analysts say he is the force behind the company's recent turnaround.
Ford also announced Friday that it will pay an average of $5,000 in profit sharing to nearly 41,000 eligible hourly employees in the U.S.
"You think about back then and now — this is a complete transformation of Ford," Mulally said.
Looking Back To 1999
The year 1999 is ancient history for the auto industry. It was before gas prices spiked, before the economic collapse and before the deep recession.
Gary Bradshaw, a portfolio manager with Hodges Capital Management, says Ford was able to capitalize on its chief competitors' misfortunes during the past decade.
"The consumer has come back in a big way at the time that General Motors has [stubbed] their toe by going into bankruptcy," Bradshaw says. "And that's left a sour taste in the consumer's mouth."
Bradshaw and other analysts say Ford has been benefiting from a halo effect. By introducing new products and offering incentives, Ford was able to take market share from General Motors and Toyota.
GM is struggling to get out from under the "Government Motors" tag, while Toyota faces depressed sales, in part because of its product recalls.
In recent years, Ford dropped foreign luxury brands Jaguar, Land Rover and Volvo. It also shuttered Mercury to focus on the Ford and Lincoln brands. All those cuts reduced costs and added to the company's bottom line.
Harvesting The Overseas Market
But Ford still has some problems. Analysts say the automaker needs to attract more customers overseas, and especially in China, where it sold only a half-million vehicles.
Ford also needs to take advantage of any trade pact that the U.S. and South Korea sign, analysts say.
Instead of filing for bankruptcy, Ford went into debt. David Whiston, an investment analyst with Morningstar, says the company's debt could pose a problem. "Their credit is less than ideal," he says. "And it's getting better, which is good. But it's not there yet. So, they do pay a higher funding cost than, say, Toyota's."
CEO Mulally says the company is committed to paying down the debt by year's end. When Ford pays its debt, the company will be able to reach investment status, which will allow the company's captive finance arm — Ford Motor Credit — to borrow and lend money at a lower interest rate.
Analysts say that could mean billions in revenue in the next year.
Securing A Union Contract
Ford is the only one of Detroit's Big Three that does not have a no-strike clause in its contract with the United Auto Workers union. GM and Chrysler both struck deals with the UAW as a part of the bankruptcy process.
George Magliano, an analyst with IHS Automotive, says Ford's profits could put it in a tough negotiating position. "It is paramount that they get this union contract nailed down," he says. "And get it nailed down peaceably."
Meanwhile, portfolio manager Bradshaw says Ford, along with all other automakers, faces another potential problem — higher gas prices.
Ford relies heavily on its popular F-150 truck. If gas once again hits $4 a gallon, that could cause a severe drop in sales.
"And that's going to weigh heavy on the consumer's mind again," Bradshaw says. "And will he be buying the new F-150 trucks or the diesel trucks where they have better profit margins?"