$6.6 Billion Profit For Ford? Bah Humbug! Wait Until The End Of This Year!

Bertel Schmitt
by Bertel Schmitt

Ford reported a $6.6 billion profit for 2010, its highest in more than 10 years. This year, they could add $13 billion to the profit line, without selling an extra car. How will Ford pull off the miracle of the loaves and profits? With a simple bookkeeping entry.

In this week’s 10-K filing, Ford said that they might strike a valuation allowance held against deferred tax assets. The reserve was created in 2006, when Ford became a serial lossmaker. Eliminating the allowance could add $10 billion to $13 billion to Ford’s net income this year, says Automotive News [sub].

According to Robert Willens, a New York corporate tax specialist, “this is a very positive statement from Ford. If you take the radical step of eliminating your valuation allowance, then you’ve developed a high degree of confidence in your future profit-making ability.”

At the end of 2010, the reserve stood at a hefty $15.7 billion. Once a company believes it has entered a sustained period of profitability, it must remove the item from its books, Willens said.

But wait, won’t that cost Ford a load of taxes? Ford hasn’t paid U.S. taxes since 2005, and probably won’t until the end of the decade, said Brian Johnson, a Chicago-based analyst with Barclays Capital Management. Ford is sitting on $31.4 billion in operating losses from 2005 to 2009. Only when those losses are used up, the taxman can come and collect again.

Bertel Schmitt
Bertel Schmitt

Bertel Schmitt comes back to journalism after taking a 35 year break in advertising and marketing. He ran and owned advertising agencies in Duesseldorf, Germany, and New York City. Volkswagen A.G. was Bertel's most important corporate account. Schmitt's advertising and marketing career touched many corners of the industry with a special focus on automotive products and services. Since 2004, he lives in Japan and China with his wife <a href="http://www.tomokoandbertel.com"> Tomoko </a>. Bertel Schmitt is a founding board member of the <a href="http://www.offshoresuperseries.com"> Offshore Super Series </a>, an American offshore powerboat racing organization. He is co-owner of the racing team Typhoon.

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  • Steven02 Steven02 on Mar 04, 2011

    Adding to what Zackman said... Perhaps for should take some of this profit and invest it into Lincoln which is doing so badly. Either that, or Ford will be out of the luxury business soon.

    • See 1 previous
    • PrincipalDan PrincipalDan on Mar 04, 2011
      Note that none of the above were particularly (if at all) profitable while under Ford’s tutelage, but ALL improved significantly (well, maybe not Volvo) from a quality and durability standpoint during that time. I wonder if Tata sends Bill Ford a Christmas card and a goodie basket for turning Jaguar's quality around before he sold it to them?
  • GS650G GS650G on Mar 04, 2011

    The luxury business is fickle at best. The most respected names don't have low end offerings, witness GM trying to sell crappy Chevies as Caddies. Ford has a lot of promise, I don't see them going the way of the other two.

  • Lorenzo Lorenzo on Mar 04, 2011

    Okay, you've convinced me that the happy profit headline is imaginary accounting. How are you going to convince Ford's UAW workers that they're not entitled to hefty pay raises from those imaginary profits they read about in the headlines?

  • Herb Herb on Mar 04, 2011

    Maybe UAW workers will get imaginary pay raises?

    • Lorenzo Lorenzo on Mar 04, 2011

      Would that be followed by an imaginary strike? That reminded me of a cartoon of picketers holding up sticks with no signs. The sign painters' union was on strike.

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