Ford Tops GM in Profit for First Time in 62 Years : $3.285-Billion Total in Bottom-Line Derby Recalls the Heyday of the Model T
The last time it happened, you could buy a brand new Ford--even one with all-metal doors--for $290. Henry Ford reigned supreme in Detroit, and his huge Highland Park, Mich., assembly plant was still pouring out millions of Model Ts--all black.
Lots of things have changed in the auto industry. But on Tuesday it seemed like Ford had pushed back the clock 62 years when it announced that it beat General Motors on the bottom line last year for the first time since the heyday of the Model T in 1924.
Thanks to a stringent cost-cutting program and booming sales of its new aerodynamic Ford Taurus and Mercury Sable models, Ford said that it earned a record $3.285 billion in 1986, up more than 30% from its 1985 profits of $2.515 billion.
By comparison, GM, which has been squeezed by ballooning costs and sluggish sales, announced earlier this month that it had a 1986 profit of $2.945 billion, down 26.4% from 1985’s level of $3.99 billion.
Fourth-Quarter Profit
In the fourth quarter, Ford reported profit of $785 million, up 9%, while GM made just $382 million, down 69.5%.
Ford’s bottom-line victory over its bitter cross-town rival had been widely expected by industry analysts, who now believe that Ford has taken a much more thoughtful approach to confronting foreign competition than has GM.
“The real answer to Ford’s success is that they have had a balanced approach to the problems they have confronted,” says John Hammond, a partner with J. D. Power & Associates, an automotive market research firm. “People used to ask, what is the Japanese secret? Well, the answer was that they were doing all the little things right, with a balanced approach, paying attention to the details. Well, that’s what Ford has been doing.”
Most industry observers also agree that one of the keys to Ford’s turnaround since the recession, when it was posting billion-dollar losses, has been its tough stance on cost cutting. During a period when GM has been spending billions on costly new plants, equipment and product programs--and has received little to show for its efforts in terms of higher sales--Ford has continued to slash away at costs, even after its sales recovered from the slump of the early 1980s.
Officials Grimly Proud
In fact, Ford officials seem grimly proud of the fact that they have been willing to take rather Draconian cost-cutting actions during the past few years, while their larger competitor was becoming more and more bloated.
Ford has, for instance, closed 15 manufacturing plants worldwide since 1979, including seven in the United States, and has not opened any new ones to replace them. At the same time, the company has also reduced its white-collar work force by 30%, and has taken a total of $5 billion in annual costs out of its system in the past seven years.
Thus, GM, which had the lowest costs per car in Detroit a decade ago, now has spent itself into a position of having the highest cost structure. Ford, meanwhile, is virtually tied with Chrysler for having the lowest.
As a result, Ford, on average, makes more than twice as much money every time it builds a car than does GM.
“The way you can appreciate what Ford has done to turn itself around, is to look at what GM has done during the same period,” noted Hammond.
Ford’s new emphasis on novel, aerodynamic styling on its cars, which observers say has transformed the company into the design leader in the domestic industry, has also begun to pay dividends.
The company said that its Taurus intermediate model, which had been in short supply for much of the year, became the best-selling car in the country during the fourth quarter of 1986.
Still, Ford remains a distant No. 2 in sales among America’s auto makers, badly trailing giant GM.
And, at the same time, Ford’s total U.S. car sales were off 0.2% in 1986, as imports set a new sales record and continued to eat into Detroit’s share of the total market. So, without Ford’s tough cost-reduction program, the success of the Taurus and Sable would probably not have been enough to offset the sluggish sales of the company’s older car lines, and Ford would likely not have beaten GM.
In fact, Ford Chairman Donald Petersen and President Harold Poling conceded in a joint statement Tuesday that it was premature for Ford to celebrate.
“Although 1986 was a very good year for Ford, it also was a good year for sales of foreign cars and trucks in the United States,” they said. “Despite a 53% strengthening in the (Japanese) yen and a 49% strengthening of the (West German) deutsche mark versus the dollar since September, 1985, foreign cars and trucks achieved record sales. We recognize the challenge that this situation creates for Ford.”
