The Motley Fool Previous Page

Here's Why Ford Is Making Big Money

John Rosevear
November 13, 2012

Big troubles in Europe? Big investments weighing on profits in Asia?

It's no problem for Ford (NYSE: F  ) . Despite overseas challenges, the Blue Oval's profits continued to impress in the third quarter thanks to big earnings at home.

Ford's pre-tax profits in North America were $2.3 billion, up 48% in the third quarter over year-ago totals. That's despite U.S. sales that are up just 4.9% so far this year through October.

How did Ford manage to pull that off? By making the most of what it has.

How Ford built big margins at home
Ford's operating margin in North America in the third quarter was 12%, far ahead of General Motors (NYSE: GM  ) and most other rivals. Some of that margin comes from Ford's product and pricing strategies: By offering well-executed vehicles loaded with features that compare well with competitors, Ford creates strong demand – and takes advantage of it by holding down discounts.

That's a big part of the "One Ford" blueprint that remade the Blue Oval's business. But another big part of One Ford is summed up in a phrase I hear from CEO Alan Mulally every time I talk to him: matching capacity to real demand.

What Mulally and other Ford executives are talking about when they use that phrase is keeping Ford's fixed costs as low as possible. The costs involved in making cars on an industrial scale are massive: factories, complex specialized tooling, and labor contracts all add up to very big numbers.

The ability to get the most out of Ford's tooling, assembly lines, and worke