Monday, November 02, 2009 , , , , 0 Comments

I am slightly (horribly) confused. Can someone explain WTF is going on here?


Ford Motor Co (F) posted a $1 billion quarterly profit on Monday, defying Wall Street forecasts of a loss, as it cut costs and gained market share, leading it to raise its 2011 outlook to "solidly profitable" from break-even.

Ford's shares surged 8 percent as the surprising profit and increased outlook overshadowed news that the United Auto Workers union rejected a tentative cost-cutting deal with the automaker that would have brought its labor costs in line with U.S. rivals.

The only large U.S. automaker not to file for bankruptcy in 2009, Ford also said later on Monday it is seeking to extend its revolving credit facility from 2011 to 2013 and raise another $3 billion of capital through convertible debt and equity offerings.

The quarterly results provided more evidence that Ford has distanced itself from U.S. rivals General Motors Co (GM) and Chrysler, which have struggled to complete restructurings after emerging from government-funded bankruptcies earlier in 2009.

Ford seized North American market share from GM and Chrysler when they halted most production to prepare and execute their bankruptcy cases.

"We're creating a very strong business and we are not taking taxpayer money," Mulally said on a conference call with analysts. "So the advantages clearly outweigh any potential disadvantage."

Ford reported $1.3 billion of positive cash flow in the third quarter, its first positive quarter since the second quarter of 2007, and forecast positive cash flow in the fourth quarter. It burned through $4.7 billion of cash in the first half of 2009.

The Ford Focus and Ford Escape carried most of the Cash for Clunkers success, though I can't see how anyone could discern this to be a sustainable shift in growth for Ford:

One reason for Ford’s bullish quarter was the government’s “cash for clunkers” program, where the Ford Focus and Ford Escape were among the most popular vehicles to replace the polluting, gas-guzzling clunkers. A key reason that pending home sales number are so high is that the government’s tax credit for first-time home buyers expires Nov. 30 (unless Congress extends it).

But other factors are contributing, too. Ford’s aggressive cost-cutting has saved $4.6 billion in the first nine months of the year, more than its $4 billion target for the full year. While home sales may not grow as strongly going forward, it looks as though they hit bottom this summer.

Freakonomics gives us the real economic cost of all of this and I remind everyone that remedial econ teaches "there's no such thing as a free lunch" - which essentially means Ford used the ignorance of the American taxpayer ($24,000 a car? You idiots. Hope you got one since you were paying for it anyway) to blow a load all over its earnings. It's like JP Morgan but with wheels and shitty cars no one wants: reports that its statistical analysis of the Cash for Clunkers program finds that the program generated only 125,000 extra new vehicle sales, meaning that the cost to the U.S. government was $24,000 for each of those new cars.

The reason the cost per incremental car is so high is that, according to’s modeling, 82 percent of the vehicles purchased under the program would have been bought this year anyway, even without the subsidy. So Cash for Clunkers mostly just turned out to be a gift from the government to people who happened to be in the market for a new car at the right time. The auto manufacturers and dealers did not end up getting a very big chunk of the money ultimately, although they did get paid earlier rather than later in the year.

Is this surprising? Not to an economist. It is relatively easy to move around the timing of when someone purchases a durable good, but much harder to affect whether they buy a durable good or not.

Ford hereby joins Citigroup in becoming a StockTwits curse word: $F You.

A bailout by any other name...

Jr Deputy Accountant

Some say he’s half man half fish, others say he’s more of a seventy/thirty split. Either way he’s a fishy bastard.