Ford makes $8.8bn profit in 2011

FORD Motor Company has posted a pre-tax operating profit of $US8.8 billion ($A8.28 billion) against revenues of $20.2 billion for the 2011 calendar year, its best result since 1998.

The company’s automotive division increased profitability by $1 billion to $6.3 billion and reduced debt by $6 billion, improved its cash position by $8.4 billion and ended the year with $32.4 billion in liquidity.

Success in Ford’s North American operations helped offset a drop in fortunes across many other areas of the business, including losses in the Europe and Asia-Pacific-Africa regions plus lower profitability in South America and financial services.

However, it faced a tough fourth quarter with a 17.9 per cent drop in global automotive profits to $586 million due to unfavourable exchange rates and high commodity prices.

Ford also cited higher staff costs in North America due to a deal struck with the auto industry unions in October, but claims the four-year agreement improves its competitiveness in the US.

From top: Ford EcoBoost engine production, Ford Escape SUV, Ford Fusion sedan.

A sharp $13.7 billion increase in revenue included the one-off release of a valuation allowance against deferred tax benefits created in 2006 as Ford became loss-making.

Analysts describe the move as a show of strength and optimism for the company’s future as it signals confidence in its ability to remain profitable long-term, bolstered by three consecutive years of improving profits under CEO Alan Mulally.

Ford says it will make profit-sharing payments averaging $2450 to each of its 41,600 eligible hourly paid employees in the US, bringing the total bonus for 2011 to an average $6200 per employee.

It also plans to make a $3.5 billion cash contribution (including $2 billion in the US) to its various funded pension plans around the world as part of its “long-term strategy to reduce risk”.

Ford executive vice-president and chief financial officer Lewis Booth described 2011 as a “milestone year” in strengthening the company’s balance sheet and that work to increase cash, reduce debt and improve liquidity would help resume the payment of quarterly dividends to shareholders.

While Ford increased full-year profits in North America by $800 million due to increased volume of higher-priced products, the result was tempered by increased warranty and freight costs.

Profits from Ford’s South American operation reduced 13.9 per cent from $1 billion in 2010 to $861 million last year, despite revenue remaining static, due to unfavourable exchange rates and higher commodity prices.

Slower sales and higher material prices saw a $27 million loss in the European region compared with a $182 million profit in 2010, while the Asia-Pacific-Africa region also went into the red, from a profit of $189 million in 2010 to a $92 million loss last year.

Ford blames lower sales volumes – down 16,000 units in the fourth quarter alone – and the high proportion of less-profitable vehicles sold, attributed to the impact of flooding in Thailand during the fourth quarter.

In addition to lost production of an estimated 32,000 vehicles due to the floods, the lower profit was also due to investments made in developing new products and laying the groundwork for future growth in the region, including the start of four new vehicle assembly and driveline production facilities.

Losses from Ford’s ‘Other Automotive’ division slowed from $1.5 billion in 2010 to $601 million last year, which the company says “mainly reflects net interest expense”, while Ford Credit, the company’s financial services sector, saw profits fall “in line with expectations” to $2.4 billion, down 22.6 per cent.

Ford counts the launch of its Australian-designed and engineered Ranger ute among the highlights of the year, alongside the debut of its three-cylinder EcoBoost engine and unveiling of the new Escape compact SUV.

For this year, Ford says it plans to further improve its balance sheet, continue restructuring its operations to remain profitable at current levels of demand for volume and product type, and accelerate the development of new products “that customers want and value” under the One Ford plan.

From a product perspective, the new Ford Fusion and Lincoln MKZ sedans will be introduced using the new ‘global CD platform’, while the worldwide introduction of the Focus will be bolstered by the launch of its platform-sharing Escape/Kuga SUV.

The Fiesta platform will spawn the B-Max people-mover and EcoSport SUV and, as GoAuto has reported, Ford will pursue a tripling in the production of its downsized EcoBoost engine line-up.

Mr Mulally said Ford is “making consistent progress on our commitment to deliver great products, invest for global growth, build a strong business and provide profitable growth for all”.

“We recognise we have challenges and opportunities ahead,” he said.

“We are excited about realising the full potential of the global scale and operating margin benefits inherent in our One Ford plan. We also are excited about what leveraging our global assets ultimately will deliver for everyone associated with our business.”