Thursday, November 5, 2009

Ford Motor Company Reports Profit – Positives and Negatives

The Positives:

“…the only major U.S. automaker to avoid bankruptcy, posted third-quarter net income of $997 million and its first operating profit since early 2008…”.

“…finished the third quarter with $23.8 billion in automotive cash, up from $21 billion at the end of the second quarter.”

“…U.S. market share increased to 15.8 percent for the first nine months, compared with 14.8 percent from a year earlier…”.

Certainly, registering a third-quarter 2009 positive profit with a market share gain are excellent and solid signals. Unfortunately it overlooks Ford’s negatives, which give pause and concern for the future.

The Negatives:

“…workers have overwhelmingly rejected contract changes that would have allowed the automaker to cut labor costs.” “Ford sought the deal to bring its labor costs in line with Detroit rivals Chrysler Group LLC and General Motors Co….”.

Bringing Ford's hourly labor costs in line with General Motor's and Chrysler's should not be the priority. The priority is to become cost competitive with USA based Japanese automotive manufacturers. Ford's, GM's and Chrysler's hourly base wage rates and benefit costs are reportedly $20 to $30 per hour higher than Japanese competitors. Doubtful these costs were reduced in the GM and Chrysler bankruptcies. This remains a huge problem.

“…workers felt they were being asked to sacrifice more than the company's executives. Ford CEO Alan Mulally made $17.7 million last year…”.

There is some justification in the Unionized Employees position on this issue. Hourly employees are well aware that officers of a major company have significantly higher incomes. This is not an issue in healthy economic times. But in poor economic periods, if Management is perceived as not sacrificing with all on board, then a disconnect is created, and polarization with contract rejection occurs.

A helpful signal for Unionized employees, to convey Management is being serious about reducing overhead costs, is if Ford has cut back on some Executive perks. Does Ford still have an executive dining room, replete with waitresses, multi-course menus, and silver finger bowls?

“He (Alan Mulally, CEO) hasn’t presided over an annual profit at Ford, which has posted three straight full-year losses totaling $30 billion.”

Other questions exist. For example, did the quarterly profit rely heavily on favorable product mix and pricing? Will these same conditions be available in future fiscal years?

The list of negatives should not detract from the solid job Mr. Mulally and his team has done in beginning Ford's turn around. The challenges are enormous, and Mr. Mulally has clearly moved it in the right direction.