Ford Motor Co. is at a crossroads and we know this because it鈥檚 been a week of very good and very bad news for Detroit鈥檚 No. 2 auto company.
The good news is that Ford is making money, lots and lots of money.
The Dearborn, Mich.-based auto giant just reported its best-ever third quarter and automotive pre-tax profit. Ford is booming in North America with a US$2.3 billion pre-tax profit and an operating margin of 12 per cent. The latter is a BMW-like margin, by the way.
It also means that Ford has been profitable for 13 consecutive quarters now. Heck, total automotive pre-tax profit was $1.8 billion.
What about money in the bank? Ford has $34.4 billion in liquidity and automotive debt is down to a highly manageable $14.2 billion.
The bad news is that Ford isn鈥檛 really making any money anywhere but in North America. Europe is a giant sinkhole.
Alan Mulally, the Ford president and CEO, grossly understated the situation this week when he said Ford is 鈥渇acing near-term challenges in Europe.鈥�
Challenges? Ford says it will lose at least $1.5 billion in Europe for this fiscal year. On top of that, South America is barely profitable and Ford expects to lose money again in the Asia-Pacific regain, including, of course, China. Basically, Ford is a one-continent company.
The good news is that Ford is not sitting around hoping things will get better. Mulally has said: 鈥渨e are fully committed to transforming our business in Europe by moving decisively to match production to demand, improve revenue through new products and a stronger brand, improve our cost efficiencies and take advantage of opportunities to profitably grow our business.鈥�
The details here include a massive European restricting, where the company says industry-wide sales are down 20 per cent over the past five years and no one expects much of an improvement before at least the middle of the decade.
So Ford is closing three plants, which reduces manufacturing capacity by 18 per cent, or 355,000 units. These and other moves will save $450-$500 million annually.
The downside is that 13 per cent of Ford鈥檚 workforce is being affected. That鈥檚 a kind way to say Ford is cutting jobs. For those workers, downsizing is most definitely not good news.
Indeed, these are painful but responsible responses to the mess in Europe. But no one knows if other European car companies will also cut capacity.
Is Ford out in front, all alone here? And is that a good thing or a bad thing? We do know that Ford鈥檚 swift and clear actions to cut capacity in North America have paid big dividends; witness Ford鈥檚 source of profits today.
Ford says its moves in Europe will be similarly effective. The goal is to get Ford of Europe to 6-8 margins 鈥� about half those in North America.
I will say this: Ford鈥檚 CEO in Europe, Steve Odell, is a hard-working, no-nonsense guy with a strong track record. The smart money is on Odell getting the job done in Europe, though this will be the challenge of his career.
Okay, more bad news. This week Consumer Reports said a 鈥減erfect storm of reliability problems has dropped Ford to next to last among the 28 car brands ranked鈥� in the latest 2012 Annual Auto Reliability Survey.
Lincoln, the luxury brand Ford is desperate to revive, placed just a notch higher. What a huge, huge mess this is. Ford is now lagging on quality.
Yet just two years ago Ford鈥檚 quality was a bragging point.
In the 2012 CR reliability study, Ford as a brand ranked just below Lexus, Toyota鈥檚 luxury brand. The Fusion midsize car was being lauded as 鈥渧ery reliable鈥� and two Ford models led reliability in two categories: family car (Fusion Hybrid) and large SUV (Ford Flex EcoBoost). CR said Ford was 鈥淒etroit鈥檚 poster child for reliability.鈥�
No more. Jake Fisher, CR鈥檚 head of auto-testing said, 鈥淔ord鈥檚 bumpy road can be seen in the numbers. Sixty per cent of Ford-branded models and half of Lincolns were below average in predicted reliability, and none placed above average.鈥�
The good news is that Ford is at least aware of its problems. Spokesman Mark Schirmer told Automotive News that Ford鈥檚 own research echoes what CR found.
"We know we have areas to address, and we have been working on them and we have been making progress," he told the industry publication. "Our internal data ... show that we are improving in these areas, and we expect that will be reflected in next year's Consumer Reports survey."
In a nutshell, Ford still needs to fix issues with the MyFord/MyLincoln Touch system, as well as improve the launch quality of new models such as the latest versions of the Explorer, Fiesta and Focus.
We鈥檒l know how far Ford has come with this effort when quality numbers come out for the just-launched 2013 Escape, Fusion and Lincoln MKZ. None of them was counted in this year鈥檚 CR results and traditionally these models have been quality winners for Ford.
Now for a last bit of good and bad news, depending on your perspective. You decide.
Ford this week appointed Mark Fields, 51, as COO, putting him in line to succeed CEO Alan Mulally, 67. Mulally says he will not retire before 2014 and Ford鈥檚 executive chairman, Bill Ford, says the former Boeing executive -- who has led Ford since the beginning of its turnaround in 2006 -- is welcome to stay on as long as he likes.
Fields鈥� appointment does put a lid on the succession speculation that has dogged and distracted Ford Motor for at least two years. Fields鈥� job is to run Ford on a day-to-day basis.
"Mark is going to take over responsibility of leading the business plan review for the entire corporation. I'm going to step back from that to further advance the strategic issues of improving the One Ford plan," Mulally said on a conference call.
Ford鈥檚 senior leadership meets every Thursday morning in a review that has become somewhat legendary in the industry for its no-holds-barred honesty about the company鈥檚 problems and challenges.
And there are many of them at Ford in 2012.
Rebecca Lindland, the respected IHS Automotive analyst, told Automotive News, 鈥淢ark has got to help him (Mulally) figure out Europe, South America and Asia. They still have an awful lot of work to do. They're not out of the woods yet."
Exactly. All the good AND bad news tell Ford鈥檚 story.
