As North American sales soar, European market cuts into soaring profits

Dearborn, Mich. - Ford Motor Co. has tidied up North America, sweeping out old products and excess costs. But the rest of the world keeps making a mess.

The company's net income fell 45 percent to $1.4 billion in the first quarter. Ford took a beating from plummeting European sales and weaker results in Asia and South America. It also started paying more in taxes.

North America came to the rescue, with a $2.1 billion profit, its best first-quarter performance since Ford began reporting the region separately in 2000. In a note to investors, Jeffrey's analyst Peter Nesvold said Ford is seeing success no one would have predicted before its turnaround took hold three years ago.

"These are levels of profitability that few ever expected to see from the Detroit Three," he wrote.

To see how far Ford has come, consider the first quarter of 2004, when Ford made $1.8 billion in North America. The company sold 1 million cars and trucks that quarter, when the market was stronger. In the most recent quarter, with a weaker market, Ford made more money even though it sold just 651,000 vehicles.

Ford is making more because it has better products, and because buyers are shelling out cash for upgrades like Ford's touch-screen dashboard and inflatable seat belts. Auto pricing site TrueCar.com said U.S. buyers paid an average of $31,723 for Ford cars and trucks in the first quarter, up more than $1,200 from the year before.

Also in 2004, high-profit trucks made up 60 percent of sales; now, they make up 40 percent.

"It underscores our ability to make money on vehicles other than trucks," Chief Financial Officer Bob Shanks said.

Fitch Ratings is so convinced of Ford's turnaround that it upgraded the company to investment-grade status this week for the first time since 2005. Shanks said the company is seeing some benefits, although it was already paying lower interest rates on Ford Credit debt.

"The market had already voted that we were at the low end of investment grade," Shanks said.

Ford still has some housekeeping to do. The company said Friday it will offer lump-sum payments to about 90,000 U.S. white-collar retirees and former employees, which it believes is the largest such offer in U.S. history. Payouts will start later this year.

"There's no exposure to the volatility of the obligations," he said. "They're just gone. They're just not anything we have to deal with."

Outside North America, though, Ford still has plenty to deal with.

First-quarter sales fell by 60,000 vehicles in Europe, where economic uncertainty kept buyers away. Ford lost $149 million in the region. New products coming this year will help, but Shanks said Ford's costs are still too high to make money with such depressed sales.

"We're going to have to work on all aspects of cost," he said. "It won't be an overnight story."