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Ford profits fueled by tough changes


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Ford profits fueled by tough changes

Behind the high-fives over Ford Motor Co.'s $2.1 billion first-quarter profit and the promise of more to come is hope driven by real change -- and not just in Dearborn.

In different ways, Detroit's automakers are getting off their collective knees in the right shape to capitalize on a recovering national economy and the unforeseen stumbling of a chief nemesis, Toyota Motor Corp. When's the last time you could honestly think that in this town, much less say it credibly and not sound like a homer?

Yes, you read that right -- the burgeoning "green shoots" of recovery, touted Wednesday at the Michigan Chapter of the Turnaround Management Association's spring meeting, are likely to include at least a couple of Detroit's automakers and key suppliers so recently given up for dead.

So much for inevitability.

In recession after recession, Detroit traditionally emerged on the leading edge of the recovery. Sales moved higher, followed by production volumes, revenues, added shifts and the collective exhale that another slowdown had passed, the better to get back to the old ways.

Which was the problem. Sclerotic business models, sporadically competitive lineups and strengthening rivals limited the upside more each time, eventually pushing General Motors Co. and Chrysler LLC into federally funded bankruptcy and others to the brink.

The Great Recession, aggressive management (at Ford) and prodding by the funder of last resort -- Team Obama's Treasury Department -- changed that, fundamentally. Whoever says that Detroit merely cut costs to reach this recovery doesn't appreciate how much has changed since the darkest days of 2008 and before.

The structure of these companies, each in their own way, is dramatically different than a few years ago. Each increasingly is poised to generate cash, deliver profits and reinvest in new cars and trucks in ways only their foreign-owned competition could do over much of the past generation.

Their management is new, and not just in the C-suite. Their product lineups, from small cars like the Ford Fiesta and Chevrolet Cruze to luxury Cadillacs and large pickups like the Ford F-Series, are more competitive, more critically acclaimed and more likely to contribute to the bottom line than anytime in decades.

Their balance sheets are cleaner. Their brand portfolios are leaner, the better to focus scarce marketing resources. Their break-even points are sharply lower, as much a testament to historic changes in legacy labor agreements as the usual cutting of jobs and closing of plants.

Their retiree health care obligations, worth billions in liabilities every year, now are managed by trusts controlled by the United Auto Workers and are in the process of being funded. Their all-in labor costs are sharply lower, and new hires will be paid a fraction of legacy union wages.

That's not necessarily good news for per capita incomes in plant cities and states or the UAW's dues stream. But it's a change that needed to happen if GM, Chrysler and, yes, even Ford hoped to compete effectively against foreign-owned rivals operating in the States.

A harsh adjustment? Yes. The only alternative? Probably. A sad fact of the unraveling of Detroit is that the reckoning had to be as harsh as it was -- and is -- to force the change in thinking and doing that had to happen.

Today, you hear the CFOs of GM and Ford say they're less interested in managing the car business to maintain market share than they are in managing a profitable business, with the assumption that the market share will follow. Yep.

Today, top product developers talk about fielding cars and trucks that are the best in their class -- and increasingly are -- not second-class metal with middle-of-the-road interiors, underperforming engines and consistently dodgy quality.

Today, it's clear that the worst fears of a collapsing supply base were oversold, just as the ability of suppliers to rip apart their businesses in the face of declining sales is underappreciated.

None of it should be called victory so much as seen as clear, independent evidence that change in Detroit's auto industry runs deeper than the sheet metal -- which is the most hopeful thing of all.

From The Detroit News: http://detnews.com/article/20100429/OPINION03/4290346/1148/auto01/Ford-profits-fueled-by-tough-changes#ixzz0mUf3dvG2

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