Ford's Profit Surprise

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Chrysler, which is now majority-owned by private equity firm Cerberus Capital LLC, is downsizing, but improvements to its product lineup and quality rankings will be slower to arrive than what GM and Ford are accomplishing.

Balancing Its Lineup

The U.S. economy and economic worries in Europe aside, among Ford's biggest challenges within its own control is getting its product lineup in line with consumer demand and tastes. Ford has done a good job so far of offsetting declining demand in, for example, its Ford Explorer (BusinessWeek.com, 9/1/06) with the more carlike and fuel-efficient Ford Edge SUV (BusinessWeek.com, 10/18/06). And it has an unexpected hit on its hands with the latest generation of the Ford Focus. Heavily criticized by the auto press for dowdy styling when it debuted last year, Ford is increasing Focus production by 30% to meet demand for the small car, which gets above 30 mpg. But David Healy, auto analyst with Burnham Securities, says it's a mixed blessing. "Ford doesn't make any money on that car," he says.

Ford's traditional profit generators are big SUVs and pickup trucks. But rising gas prices have softened sales and forced Ford to lower production to meet declining demand. Ford later this year will launch a redesigned F-150 (BusinessWeek.com, 4/19/06), usually a big event at Ford and for truck buyers, in the teeth of the economic and housing slowdown and Presidential election, which will add to consumer anxiety.

On the upside, and a key to Ford's recovery, is the company's improvement in third-party quality measures. "This kind of validation is the foundation of consumers thinking of Ford in a new and better light and having greater confidence in buying our cars and trucks," said Ford Chief Marketing Executive Jim Farley in a recent interview. J.D. Power & Associates' new quality ranking doesn't come out until June. But Ford is already advertising, based on another firm's measure, that it has parity with rival and quality leader Toyota Motor (TM). Consumer Reports also ranks Ford well above General Motors (GM) and Chrysler, and has said that the automaker is legitimately competing for quality leadership with Japanese automakers.

Car-Based SUV

Ford is still top-heavy in its lineup with trucks and SUVs and will need another two years to better balance its showroom. This fall it launches a modern and compellingly designed car-based SUV, the Flex (BusinessWeek.com, 3/23/08), which has been lauded in the motor press for design and a high quality interior. Around the same time it will also launch the Lincoln MKS sedan, a car the company hopes will continue a nascent resurgence in the venerable American luxury nameplate.

Mulally has refocused the whole company on the Ford brand worldwide, though it still also retains the Volvo brand. Ford has agreed to sell its Jaguar and Land Rover businesses to Indian carmaker Tata Motors (TTM), a deal that will close in the second quarter (BusinessWeek.com, 12/20/07). He tried to sell Volvo, but found no takers at a fair price. In this, Ford has begun to achieve an advantage over GM, which is still trying to feed and manage eight brands in the U.S. as well as three other brands worldwide in Vauxhall (Britain), Opel (Europe) and Holden (Australia).

When Mulally took over Ford, the company was thought by many analysts and business media to be in the worst shape of the three U.S. automakers. Today, it is financially making progress, though still not out of the woods. But independent marketing and corporate image consultant Dennis Keene says: "You have to be impressed with how fast Ford is changing its fundamentals, from products to marketing to the whole culture…when you get that right, the financials tend to follow."

Ford's share price was up nearly 12% to 8.42 in midday trading.

Kiley is a senior correspondent in BusinessWeek's Detroit bureau .