Ford Profits Cruise Ahead in U.S. While Europe Hits the Brakes
Higher taxes were responsible for part of that difference, but losses in Europe and Asia also weighed on earnings. But there's no denying Ford's strength in its home market, where the Blue Oval turned in a record result.
Elegant Strategy, Strong Results at Home
Ford's pre-tax profit in its North America region was $2.1 billion. That's an increase of $289 million over its profit in the first quarter of last year. It's also something of a record: It's the highest quarterly profit that Ford has reported for the region since 2000, when it first started showing its North American division as a separate business unit in its earnings reports.
Ford's strength at home comes from the product approach it adopted when CEO Alan Mulally first joined the company in 2006. Called "One Ford," Mulally's strategy is deceptively simple. In the old days, before Mulally, Ford's different operations around the world developed their own lines of products, tailored to local tastes. But not anymore: Ford now focuses (so to speak) all of its product-development efforts on a single, simplified line of cars and trucks, which it sells (with some local variations) all over the world.
That means Ford has fewer products to develop. That, in turn, means Ford can put more effort and money into developing every one, which results in better products that compete better with rivals like Toyota (TM) and Honda (HMC). It also means that Ford can sell those products at premium prices, with fewer discounts.
And, because Ford has fewer core products, it can replace them more frequently with improved models, keeping its place at the top of the competitive heap.
Add all that up, and it's clear why Ford's profits here at home are the best they've been in years. In fact, its profit margins in North America are higher than they've been since the height of the SUV boom -- even though Ford is selling a smaller percentage of (highly profitable) trucks and SUVs nowadays. That's because Ford's popular small cars like the Focus are its best small cars ever.
Now, the challenge for Ford is to make that strategy work elsewhere.
Challenging Conditions Overseas
Ford's European division lost $149 million during the quarter, a big drop from its $293 million profit a year ago. But believe it or not, Ford's doing pretty well in Europe compared with most of its competitors -- it's just that Europe's not doing well. General Motors' (GM) Opel subsidiary and most of the European automakers are also posting losses and sales declines -- most much bigger than Ford's.
Let's put it this way: Ford's sales in Europe were down over 7% in the first quarter, compared with the same period in 2011 -- and it actually gained market share. Some competitors, like Fiat (FIATY), saw sales drop by 20%. Ford's doing the best it can, and executives say it'll continue to find ways to improve, but this is really an economic problem, not a Ford problem.
The story is a bit different in Asia, where Ford also posted a small loss. Ford's investing heavily for future growth in Asia -- just in the past month, the company has committed more than $1 billion to building new factories in China. Here, Ford is giving up small profits now in the hopes of being able to bring in large profits in a few years. If the auto markets in places like China, India and Russia continue to grow as anticipated, that could prove to be a very shrewd investment.
Long story short, as the world's economies continue to improve, Ford is well positioned for success.
At the time of publication, Motley Fool contributor John Rosevear owned shares of Ford and General Motors. The Motley Fool owns shares of Ford. Motley Fool newsletter services have recommended buying shares of Ford and General Motors and have recommended creating a synthetic long position in Ford.