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DEARBORN, Mich. – Ford, the only Detroit automaker to dodge direct government aid and bankruptcy court, surprised investors with net income of nearly $1 billion in the third quarter and forecast a “solidly profitable” 2011.
The automaker said Monday earnings were fueled by U.S. market share gains, cost cuts and the Cash for Clunkers program, which drew flocks of buyers to showrooms this summer. Ford’s shares rose 58 cents, or 8.3 percent, to close at $7.58.
The latest results signal that Ford’s turnaround is on more solid ground. The company lost more than $14.6 billion last year and hasn’t posted a full-year profit since 2005. While it made a profit in the second quarter, that gain was mainly from debt reductions that cut its interest payments.
The Dearborn, Mich., company reported third-quarter net income of $997 million, or 29 cents per share. Its profit forecast for 2011 was a step above previous estimates.
Ford’s key North American car and truck division posted a pretax profit of $357 million, the division’s first quarter in the black since early 2005. Ford cited higher pricing, lower material costs and increased market share for the improvement.
Excluding one-time items, Ford earned 26 cents per share, blowing away analysts’ expectations of a loss of 12 cents.
The earnings came despite an $800 million revenue drop. But Ford said it cut costs by $1 billion during the quarter, accomplished through layoffs in North America and Europe, reduced pension and retiree health care costs, and improvements in productivity and product development.
Lewis Booth, chief financial officer, said the company took in $1.3 billion more than it spent in the quarter, an improvement over its $1 billion cash burn in the last quarter.
“That’s a huge deal,” Booth said.
Ford’s plan to create demand and get better prices for its products, coupled with cost cuts, gave the company confidence that it will make money in 2011, Booth said.
But Ford still faces obstacles in its turnaround. On Monday, the United Auto Workers union said its members overwhelmingly rejected a deal that would have brought Ford’s labor costs in line with rivals General Motors Corp. and Chrysler LLC.
Seventy percent of production workers and 75 percent of skilled tradesmen such as electricians and pipefitters voted against it. The union said it would not return to the bargaining table.
Ford said in a statement that it will keep working with the union to make sure it stays competitive so it can keep making commitments to invest in U.S. factories.
Workers objected to clauses limiting their right to strike and freezing entry-level wages, and felt the company was healthy enough and didn’t need further concessions. The rejected deal also would have changed rules so skilled tradesmen work in teams and perform more than one task.
Rejection of the deal isn’t likely to place Ford at an immediate cost disadvantage to its crosstown rivals, because savings from the concessions are longer-term, said Gary Chaison, a professor of labor relations at Clark University in Worcester, Mass. Neither the company nor the UAW has released any cost-savings numbers.
The third-quarter profit makes it extremely unlikely that the company will push to head back to the bargaining table before the current UAW contract expires in the fall of 2011, and union leaders also are unlikely to take another deal to the membership, Chaison said.
The company avoided the same fate as rivals Chrysler and GM by mortgaging its factories and even the familiar blue oval logo to borrow $23.5 billion before credit markets froze last year.
Ford didn’t quantify the benefit of Cash for Clunkers, which offered buyers rebates to trade in their vehicles. The program helped Ford cut costly incentives and raise production.
Ford also has benefited from consumer goodwill after it declined government bailout money and didn’t go into bankruptcy over the summer as GM and Chrysler did. Ford grabbed sales from its rivals, posting the largest increase in market share of any automaker in September.
Ford expects an overall gain in U.S. market share in 2009, a feat it hasn’t accomplished since 1995.
