Employees work on a Ford assembly line Tuesday in Craiova, Romania. Last… (Daniel Mihailescu, AFP/Getty…)
Ford Motor Co. offset growing losses in recession-plagued Europe by increasing profit on the cars it sold in the U.S.
The automaker posted a third-quarter profit of just over $1.6 billion, down $18 million from the same period a year earlier. Revenue dipped 3% to $33.1 billion.
Italian automaker Fiat also reported a third-quarter profit Tuesday. Similar to Ford, the U.S. auto market was the driver behind the gain.
Thanks to its controlling interest in Chrysler Group, Fiat said profit for the quarter was 286 million euros, or $370.7 million, up from 112 million euros, or $145.2 million, in the same period a year earlier. Revenue climbed 16% to 20.4 billion euros, or $26.4 billion.
Automakers are struggling with a slumping European economy and a host of regulations by governments in the region that restrict the type of massive industry restructuring the industry underwent in the U.S. three years ago. Auto sales in Europe have fallen to the lowest level in 20 years and are not expected to rebound soon.
But in North America, Ford achieved its highest quarterly profit and operating margin since at least 2000, when the company started reflecting the region as a separate business unit.
The automaker posted third-quarter operating profit of $2.3 billion and a 12% operating margin in the region. That compared with operating profit of $1.55 billion and an operating margin of 8.6% in the same quarter a year earlier.
"In the United States over the last few years, we have taken very dramatic action to size our production to the real demand, to accelerate the development of the new products that people really do want and value, to cover more of the market segments," Ford Chief Executive Alan Mulally told investors during a conference call Tuesday.
Ford's transition from a company that primarily sold large trucks and sport utility vehicles to an automaker that also makes money selling passenger cars contributed to the profit.
"We used to lose a tremendous amount on small cars, and we made a whole lot of money on trucks," said Robert Shanks, Ford's chief financial officer. "But we've seen a dramatic improvement in the margins that we get on the rest of the portfolio."
Ford's U.S. profit is up because it is spending less on incentives to attract buyers while selling cars at higher prices, said Jesse Toprak, an analyst at auto price information company TrueCar.com.
But in Europe, its business is sputtering. The automaker's third-quarter losses in Europe widened 53% from the same period a year earlier to $468 million.
Last week, Ford announced a restructuring of its European operations and plans to close three plants there. The automaker said its operating losses from Europe could reach $1.5 billion this year. Through the first nine months of this year, operating losses are already more than $1 billion.
The plant closures, which include the layoffs of about 6,000 workers, will yield annual savings of $450 million to $500 million when completed, Ford said. But it will be mid-decade before the automaker expects to make a profit in Europe again.
Peter Nesvold, a Jefferies & Co. analyst, said the large profit Ford is pulling out of its U.S. operations points the way to improved results in Europe as the recession in the region eases and Ford's moves start to take hold.
"You've now seen what the company did in transforming North America. One has to believe the shares have tremendous upside if the company comes even close to replicating that success in Europe," Nesvold said.
Elsewhere, the automaker made only $9 million in South America in the third quarter, down from $276 million a year earlier. Ford said the decrease was primarily a result of unfavorable currency-exchange rates.
Ford's business in the Pacific region and China amounted to a small profit of $45 million, a swing from a loss of $43 million a year earlier. Ford expects to lose money in the region for the entire year.
Ford was the second U.S. automaker to report third-quarter financial results. On Monday, Chrysler Group said profit soared in the third quarter, helped by a remake of its product lineup and the introduction of the Dodge Dart compact sedan. The Auburn Hills, Mich., automaker said its net income rose 80% to $381 million compared with the same period a year earlier. Revenue rose 18% to $15.5 billion.