After seven straight quarters of reporting operating losses, Ford
Ford has finally determined it must focus on its North American segment if it is going to survive as a car maker. With steely purpose of mind, Ford basically plans on scaling back to become a much smaller, but highly focused Ford manufacturer. So along with Aston Martin, it will be selling other names in its premium category, including Jaguar and Land Rover. It's also conducting a "strategic review" of the Volvo brand, so consider that to be on the block soon as well.
Of course, none of this means the once-venerable car maker has found its way forward yet. Even CEO Alan Mulally admits that the second half of the year will be difficult, but he's also confident Ford will be able to post full-year results that are much improved over its huge 2006 operating loss.
As welcome as a profit is, it also makes contract talks with the unions more difficult. Ford, along with General Motors
In that plan, the tire maker turned the running of the health-care plan over to the unions by placing it into a trust and immediately contributing $1 billion in cash and stock. For Goodyear, it amounted to a cost savings -- the contribution has been valued at approximately $0.83 on the dollar for the tire maker -- and the unions can be assured that they will have benefits should Goodyear go belly-up.
That's enticing to the automakers and the unions, who face an estimated $90 billion to $115 billion tab for health-care obligations. A trust fund would take the obligation off the companies' books, probably reduce their payment, and provide assurance to workers that benefits will be there for them in the future. The devil is in the details, though, and how much each car maker might have to contribute would be the difference between union acceptance and rejection.
The unions already believe that Ford is still a healthy company that can earn a profit, and the quarter's showing, along with prospects for a much-improved -- if not yet profitable -- year, would underscore that belief and make them somewhat more intransigent in negotiation.
Yet as welcome as Ford's second-quarter report is, the company is still troubled, and its North American division is still hemorrhaging losses. The uncertainty the housing sector creates in the broader economy, along with the pressure it places on demand for cars, undoubtedly keeps Ford on the ropes.
The second quarter was a reprieve for shareholders who have been taking a drubbing lately, and the company's shares actually rose despite heavy losses in the market indexes. A one-quarter profit does not a healthy company make, but it does suggest that a primarily North American-focused Ford car and truck manufacturer can once again be a healthy company that can find its way forward.
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Fool contributor Rich Duprey owns shares of Ford and Goodyear but does not have a financial position in any of the other stocks mentioned in this article. You can see his holdings here. The Motley Fool has a disclosure policy.