Unpacking Ford’s Profits

The New York Times was surprised that Ford (F) reported a third quarter profit of $997 million, breaking a losing streak that had lasted for 17 consecutive quarters. Jalopnik thinks Ford is still in trouble and that it’s overestimating production goals for 2009-2010. Autoblog points out that Ford is still being cautiously optimistic, despite the good financial news.

However, what’s really important is that Ford has moved into positive-cash-flow territory, which means it won’t have to spend any more of the $23.5 billion it borrowed in 2006. As the NYT notes, Ford ended September with $23.8 billion in cash reserves.

Ford needs profits to be able to service that debt (totaling more than $30 billion), which, long-term, is a competitive disadvantage against General Motors (MTLQQ), a formerly debt-crippled company that eliminated much through bankruptcy. So Ford can market itself as the automaker that had the better master plan and didn’t have to take bailout money, but GM still has the better balance sheet.

Quarterly results and market share (Ford’s is increasing) are useful for gauging the progress of performance in the auto sector, but as we’ve learned from the GM and Chrysler bankruptcies, debt management is far more important. For Ford, all that really matters over the next two years is how CEO Alan Mulally’s big borrowing gamble of ’06 plays out. It saved the company from bankruptcy, but now a lot needs to keep going right for Ford if it hopes to stay profitable in the future.