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Turnaround depends far more on profits than on making more cars and trucks than Toyota

By Daniel Howes / The Detroit News

DEARBORN — If you depend on Ford Motor Co. for dividends or a paycheck, what’s more important — remaining the world’s No. 2 automaker or sustaining a turnaround by building and financing vehicles that deliver improving quality and reliability?

The smart answer is the latter, even if Ford’s critics (some of whom are its own employees and retirees) relish hammering on the former.

Let them. Ford’s renewal, still in its early if encouraging stages, depends far more on the profits it makes and how it invests that cash than whether it produces 6.72 million cars and trucks worldwide, excluding Mazda, and Toyota ends 2003 with 6.78 million, by including Hino and Daihatsu.

Toyota’s surge past Ford to become the global No. 2 “is what it is and not something I’ll try to explain away,” Chairman Bill Ford Jr. told me in an interview Friday, one day after the automaker posted its first full-year net profit since 2000.

“To me, the size of a company is not necessarily a harbinger of how well it’s doing.”

That’s a new way of thinking around here, where bigger has always been better, but it’s also right. Crosstown rival General Motors Corp. has been No. 1 since the late 1920s when it surpassed Ford, thanks to Henry Ford’s stubbornness and then-GM President Alfred P. Sloan’s “a car for every purse and purpose” strategy.

As much of the last 25 years can attest, GM has been anything but the industry’s most successful. Now, GM is smaller, in terms of market share, than anytime since at least the Great Depression, but it’s building better products and making a (comparatively thin) profit doing it.

What matters now for Ford — and Bill Ford — is whether Ford is measurably heading in the right direction, consistently and with purpose.

What also matters is whether Ford is executing a turnaround-and-growth strategy that will benefit the company, employees and shareholders over the longer term even if it doesn’t always satisfy the infantile impatience on Wall Street.

“The important thing is that we continue to make progress and get better every year,” Bill Ford said. “We’ve done that and we’re going to do that in ’04.”

Ford has beaten Wall Street estimates in each of the past eight quarters since unveiling its turnaround plan. Its luxury car unit, the Premier Automotive Group, has pulled out of the ditch and is back on track. Its profits-per-unit are improving despite a slide in U.S. market share and a 3.5 percent decline in global sales.

Ford’s shares are up 140 percent from their low of $6.58, closing Friday at $15.83. Capital spending of more than $7 billion annually — 4.3 percent of Ford’s $164.2 billion revenues — is on the high side for the global automakers, but it signifies an investment in the lifeblood of the business — new cars and trucks.

“It’s still early and it’s very fragile,” Bill Ford said of the two-year old turnaround plan that aims to deliver $7 billion in pre-tax profits by the middle of the decade (which is just around the corner). “We just need to stick to the game plan. It’s not terribly sexy; it’s three yards and a cloud of dust.”

Fine, so long as the game plan works. Like Toyota, Germany’s BMW AG and France’s PSA Peugeot-Citroen, the Ford family’s controlling stake in the automaker gives Ford the ability to spurn the short-termitis of the capital markets. Some analysts and investors do not like that approach, but there’s ample evidence in Paris, Munich and Toyota City that it can build value over the longer term.

We still don’t know whether that will be the case at Ford under Bill Ford, who concedes that this year isn’t likely to be a banner one for profits considering all the new products Ford will be launching. Nor are there any guarantees that the automaker will hit the $7 billion target it laid out in January 2002 after losses of $5.5 billion.

On more than one occasion recently, Bill Ford has lamented, only half in jest, the company’s commitment to $7 billion pre-tax profits at the end of a five-year turnaround plan. It’s almost impossible, he says, to predict market trends and geopolitical events three, four or five years out.

“My guys keep telling me we had no choice, that we couldn’t come up with a plan and not come out with a number,” Bill Ford said. “When you’re in a rebuilding mode, you have to be more open. We put out a lot of metrics and even when we meet those metrics (many analysts) don’t seem to care.”

That’s why the mantra inside Ford’s executive ranks is simple: Under-promise and over-deliver. Sooner or later, they figure, perception will catch up to reality.

Not that you could blame Ford’s skeptics for being skeptical. Despite the run-up in shares of GM and Ford, it’s fashionable to be down on Detroit, bullish on Nissan and Honda and positively wild about Toyota and BMW.

There are hard numbers, charts and earnings models to buttress those assessments. Toyota is gaining market share every month. It is building yet another truck plant in the United States, this one in Texas, the heart of American pickup country. And it is considered, with some careful justification, to be the industry’s environmental leader.

But we haven’t reached the end of history at Ford, any more than we have for Detroit’s automakers as a whole. Ford is gaining traction even as its rivals are accelerating.

The point is that the bosses of the Glass House have pulled Ford back from the brink — again.
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