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Ford Motor Co. demonstrated the growing strength of the U.S. auto industry Tuesday by posting a third-quarter profit of $1.7 billion, a 69% jump over the same period a year ago and surpassing a previous record set in 1997.
The automaker — which unlike General Motors Co. and Chrysler Group avoided bankruptcy reorganization last year — benefitted from both cost cutting and top-line performance, gaining U.S. market share and selling vehicles for higher prices.
"Overall, we are doing better than we expected through the first nine months of the year," said Alan Mulally, Ford's chief executive, "and we expect to deliver solid profits in the fourth quarter and for the full year."
Ford has reduced its level of sales-incentive spending at the same time buyers are adding options to their cars and spending more, according to Edmunds.com, the auto information company. Edmunds.com estimated that buyers paid an average of $30,636 for a Ford in September, slightly higher than a year ago and up 10% from five years ago.
"For a long time, they weren't really in the car market very strongly, depending mostly on trucks and SUVs. Now they have good cars, and the car market is where the action has been in recent years," said Jessica Caldwell, an analyst with Edmunds.com.
Ford's profit equaled 43 cents a share and compared with earnings of $1 billion, or 29 cents a share, in the same period a year earlier. It was the automaker's sixth consecutive profitable quarter. Revenue fell to $29 billion from $30.3 billion a year earlier, before the company sold off Volvo, the Swedish automaker, to focus on its core Ford and Lincoln brands. Year to date, the company has earned $6.4 billion.
In early trading, Ford shares rose 7 cents to $14.22. "This was another strong quarter," said Mulally. "The key drivers for improvement in 2011 will be our growing product strength, a gradually strengthening economy and an unrelenting focus on improving the competitiveness of all our operations."
On Friday, Ford plans to use some of the cash it is generating to pay off the remaining $3.6 million it owes to the United Auto Workers union retiree healthcare trust, which will save it about $330 million in annual interest expenses. The automaker borrowed heavily to stay afloat during the recession and is working to pay back those loans.
The payment will reduce the company's total debt to $22.8 billion, a net reduction of $10.8 billion from the end of 2009. Ford said it expected its cash holdings to be equal to its total debt by the year's end, earlier than it previously anticipated. Ford also plans a stock offering that would convert $3.5 billion in debt to common stock during the fourth quarter.
"We are clearly ahead of where we thought we would be on improving our balance sheet and repaying our loans," Mulally said. "This allows us to reduce our annualized interest payments by over $800 million."
Ford's American operations had an operating profit of $1.6 billion, compared with $300 million in the same period a year earlier. The company was profitable in South America and in Asia, driven by gains in China and India, but lost money in Europe. The company said it expected its European operations to become profitable in this year's fourth quarter.
Much of the automaker's success is coming from a string of successful new products, such as the Fusion sedan and the Edge SUV. Truck sales, especially government and business fleet sales of the F-150 pickup also added to the quarterly profit, Caldwell said.
Ford's latest vehicles have been well received by consumers.
"It's much better than the Ford of five years ago," Caldwell said. Ford sales have risen 21% to 1.4 million vehicles through the first nine months of this year. That's more than double the overall industry gain. Its share of the U.S. market has grown to 16.7% from 15.2% — the largest jump of any automaker this year, according to Autodata Corp.
The automaker has been able to restructure so it can operate profitably with what are considered historically low auto sales numbers.
There are some signs of a more robust rebound in the U.S. auto market, which was up about 10% through the first nine months of the year.
Mark Fields, Ford's president of the Americas, said Monday that U.S. auto sales hit an annualized pace of about 12 million vehicles in October, its best rate so far this year. Automakers will report their October sales results next week.
