The Basics of Ford

For the past two decades, The Motley Fool has been working hard to help you invest better. This September, we're reaching out to millions of investors to help guide them in their quest toward financial knowledge and independence.

In that spirit, I'd like to introduce you to the basics of a company that many people know but fewer people know well: Iconic American automaker Ford (NYS: F) .

The revival of an American icon
We all know what Ford does. Ford's cars and trucks have been ubiquitous on American roads -- and roads around the world -- for more than a century. Founded in 1903 by Henry Ford, the Ford Motor Company pioneered the mass production of affordable vehicles and arguably did more than any other single company to usher in the age of motorized transportation.

That's one heck of a resume, isn't it? Ford's long history is full of superlatives, but what's most relevant to today's investors is the company's recent history -- and the remarkable turnaround it has made under its current CEO, Alan Mulally. Like its Detroit counterparts, General Motors (NYS: GM) and Chrysler, Ford was in deep trouble by the middle of last decade, too dependent on truck sales that were fading as gas prices rose. But unlike GM and Chrysler, Ford's leaders saw the disaster coming in time to finance its own turnaround.

In 2006, Mulally and his team essentially mortgaged everything Ford had, including the famous Blue Oval trademark, to secure more than $20 billion in loans in a last-ditch attempt to turn around the struggling company. Long story short, it worked even better than they'd hoped: Some painful restructuring was needed, and things looked ugly during the worst of the financial crisis, but since then, Ford's new products -- and profits -- have shined.

The secret of Ford's current success
Those new products have paid off big for Ford, in more ways than one. While the public's perception of Ford's quality hasn't quite caught up to the reputations of Toyota (NYS: TM) and Honda (NYS: HMC) , the truth is that Ford's quality has made huge strides -- and increasingly, longtime import-brand loyalists are giving Ford's new cars and trucks a closer look, and they're liking what they see.

Meanwhile, Ford's restructuring, and Mulally's decision to reorient Ford around a smaller, globalized lineup of products, have done great things for the company's bottom line. On a pre-tax basis, Ford has been profitable for 12 consecutive quarters -- with big profits in North America the "engine" of the company's global finances.

Those profits have come despite a level of sales that is still far below pre-recession levels. Two key factors are responsible. First, Mulally's restructuring and operating plan, called "One Ford," lowered the company's fixed costs -- its ongoing investments in everything from factories to engineers -- dramatically. That in turn lowered Ford's "breakeven point": Ford now says it will be profitable as long as industrywide U.S. auto sales remain above 10.5 million a year, a rate of sales likely to be seen only in a deep recession.

The second factor is the "One Ford" product strategy, which calls for a relatively small number of global products. Ford used to design different cars and trucks for different regions around the world, but now it sells a single product lineup, with some regional variations, everywhere it does business. That has two advantages: First, with fewer product-development programs, Ford can invest more in each. That leads to better cars and trucks, for which Ford can command premium prices. It also leads to better economies of scale, driving costs down even further.

Put those two factors together, and what you get are bigger margins and better vehicles - exactly what Ford has shown in recent quarters.

Ford today is healthier than it's been in many years. But the company still faces some big challenges.

But overseas markets continue to pose challenges
Ford's strength in North America has to some extent offset challenges elsewhere. Europe's ongoing economic difficulties have meant big losses in the region for Ford (and most of its regional rivals), losses that are likely to continue for several quarters. Meanwhile, Ford is investing heavily in new factories in Asia, as it bets on rapid growth in China and elsewhere. Those investments are likely to pay off in a few years but have been offsetting decent results in the region in the near term.

Still, Ford is solidly profitable, and Mulally's management has been hard to fault. Rumors that Mulally has been considering retirement have worried some investors, but I think those worries are overblown. Ford's senior management team has been remarkably stable over the last few years, and Mulally's probable successor, North America chief Mark Fields, is a capable leader who is likely to keep Ford on course.

For more on Ford, be sure to check out this special premium report on Ford and its prospects put together by the Fool's analysts. And do take a look at the special website we've set up at InvestBetterDay.com. There will be much more to come between now and Sept. 25 -- take a look and prepare to be educated, amused, and hopefully enriched!

The article The Basics of Ford originally appeared on Fool.com.

Fool contributor John Rosevear owns shares of Ford and General Motors. Follow him on Twitter at@jrosevear. The Motley Fool owns shares of Ford.Motley Fool newsletter serviceshave recommended buying shares of General Motors and Ford and creating a synthetic long position in Ford. We Fools don't all hold the same opinions, but we all believe thatconsidering a diverse range of insightsmakes us better investors. Try any of our Foolish newsletter servicesfree for 30 days. The Motley Fool has adisclosure policy.

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