The Truth About Cars » Profit The Truth About Cars is dedicated to providing candid, unbiased automobile reviews and the latest in auto industry news. Wed, 23 Jul 2014 18:25:17 +0000 en-US hourly 1 The Truth About Cars is dedicated to providing candid, unbiased automobile reviews and the latest in auto industry news. The Truth About Cars no The Truth About Cars (The Truth About Cars) 2006-2009 The Truth About Cars The Truth About Cars is dedicated to providing candid, unbiased automobile reviews and the latest in auto industry news. The Truth About Cars » Profit Piston Slap: To Love an Italian…Turbo Diesel? Mon, 19 Aug 2013 12:25:57 +0000

Don writes:

I have acquired two VM Motori RA 428 engines that were pulled from new Chrysler minivans in 2009. The van were converted to electric drivetrain in LA. I want to install them in a pickup but because they were never installed in a truck from the factory, it will have to be a custom job.

The wiring harness and ECU, motor mounts, and transmission are the TBD parts. My question is would you do it?

The total cost to install it has to be less than $5K to make it worth it. I paid $1500 for the engine and could resell them in Europe for $3K each and just go buy a diesel truck.

Sajeev answers:

Well! That’s a question ya don’t hear on a regular basis!

Your 5k budget is doable, provided you make items like the engine mounts/chassis wiring integration/fuel system/etc. yourself, handling all such fabrication roadblocks…by yourself.  With your own (free) labor.  Perhaps you can make it happen.  If so, I look forward to seeing your progress. If you cannot, give up now and sell the “Motoris” for that aforementioned profit.

Which leads to the big problem: questions arising from your need to assign a dollar value to this insane project.

Love is necessary when Frankensteining such a machine, any machine, in this manner.  Love for the donor truck.  Or the engine. Or the need to waste your life (sorry) by fabricating stuff when you could probably do something more worthwhile with that effort. Like volunteering your talents to a charitable organization, or just yelling with everyone else during a football game. Either way.

Why is the Piston Slap guy so douchey-harsh?  Because if you are doing this for the money, odds are every would-be buyer’s offer shall be quite the insult. Even worse, they might be right.

Your move, Best and Brightest.


Send your queries to Spare no details and ask for a speedy resolution if you’re in a hurry…but be realistic, and use your make/model specific forums instead of TTAC for more timely advice.

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Tesla Reports Q1 Profit, Cancels 40 kWh Model Mon, 01 Apr 2013 17:05:38 +0000

Just ahead of their Q1 2013 earnings called, Tesla announced that they were profitable in the first quarter of the year, with deliveries exceeding their own targets. In addition, Tesla has also decided to discontinue the base trim of the Model S due to a lack of demand.

Tesla reported 4,750 deliveries of the Model S, up from their own estimate of 4,500 units, which, according to the company, helped them turn a profit this quarter. Crucially, Tesla claims that profitability is achieved even using GAAP principles, since non-GAAP accounting is more easily manipulated to reflect positive results.

The 40 kWh car, which started at just under $60,000, apparently had a take rate of just 4 percent, leading to Tesla’s decision to axe it. Instead, customers who ordered the base model will get a 60kWh model electronically limited to only use 40kWh of energy. Buyers can have this reversed by Tesla if they wish, and future owners will be able to perform the procedure as well. 60 kWh cars will also be Supercharger ready across the board.

Given that Tesla’s customer base is made up of extremely wealthy EV enthusiasts who are looking to the Model S as either a) a status symbol b) a third car or c) an outright toy, the death of the 40 kWh model makes sense. Few would realistically want a base Model S whether because of status signalling or the reduced performance (in terms of both acceleration and range). Customers interested in the Model S are much more likely to gravitate to the 60 kWh model or the full-bore 85 kWh version, in the same way that the S63 AMG is the best way to use the Mercedes S-Class as an expression of one’s wealthy.

The higher profit margins on the more expensive models are also beneficial to Elon Musk’s vision of a profitable auto maker. Despite his grandiose vision of himself as a 21st century version of Henry Ford, there is little margin in producing mainstream cars. Better to let Tesla continue to market to the very wealthy while slowly allowing their product to become more accessible, rather than an ill-timed push into the mainstream.

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Industry: Optimism Is Back, But Only A Little At A Time Tue, 22 May 2012 16:28:15 +0000

Optimism sure ain’t what it used to be. Introducing its latest survey of auto industry executives [PDF], Booz & Co. proclaims that “optimism is skyrocketing,” and that “a new wave of optimism is overtaking the U.S. auto industry.” They’re not wrong, but for those used to the pre-bailout days of unabashed optimism dressed up as analysis, the “new optimism” is remarkably guarded. And it’s all relative to the pessimism that was beginning to set in when the industry began to realize that the “old optimism” was wildly at odds with the slow-motion market recovery.

So, just how optimistic is the “new optimism”? Which companies have the most reason for optimism? What do industry executives worry about most? When do they expect a Chinese invasion? The answers to these questions and more after the jump.

The “somewhat better” scenario that industry execs tell Booz is defining their business planning looks something like this graph. Overall, 86% of suppliers and OEMs expect auto sales growth to be consistent with GDP growth. This steady market growth outlook puts a premium on market share growth, and the execs polled certainly seem to have strong opinions on that front:

This chart is amazing to me. Clearly the US industry is terrified of two automakers: VW/Audi and Hyundai/Kia. More executives think VW will gain share than think Nissan, Honda, GM or Chrysler will gain or maintain their market share, and the optimism around Hyundai/Kia is straight-up out of control. It’s almost as if auto execs are haunted in their sleep every night by hipster hamsters and the disembodied voice of Jeff Bridges repeating the words “forty miles per gallon” over and over in a congenially bemused voice.

And where do executives think success comes from? Product, product, product. After all, market growth may be slow, but companies expect their revenue to rise. Cost, inventory and pricing discipline can deliver improved profit in a low sales growth environment, but only if the product sells itself.

Meanwhile, 55% of the OEM executives polled say their companies are “capacity constrained” and 36% say they are comfortable with current capacity. As sales rise slowly, higher capacity utilization will  help drive the revenue improvements the industry sees. Once again, as long as the product is good and discipline can be maintained.

And though 69% identified current product portfolio as a top-three driver of growth in 2012, only 17% expect their current portfolio to turn in a “strong performance” vis-a-vis the competition, with 44% expecting a “good performance.” Cost position and financial position are two factors that could always be better from an executive’s position, but the fact that 26% of execs say customer experience and relationship performance could be “poor” or “very poor” is worrying.

Meanwhile, all the talk of price and capacity discipline and improving profit rather than buying market share will only last as long as there’s no major effort to break into the US market. But by 2020, 32% of auto execs expect Chinese manufacturers to have broken into between four and eight percent of the market. By attacking the low end of the market and aggressively trying to buy a foothold in the US market, Chinese firms hold the potential to wreck the disciplined, realistic “new optimism” by putting severe pressure on pricing discipline.

For now, though, the automakers in the US market seems to be settling into a quiet phase of profit-taking rather than adventurous market share grabs. Clearly there’s a sense of having learned tough lessons from the auto bailout, and from the ongoing capacity issues in Europe. But rather than focusing on bailout-era lessons as they did last year, Booz’s 2012-specific questions now center on dealing with “black swan” events like last year’s tsunami and Thai floods. All of which adds to the overall perception that automakers are playing defense, concentrating on profits and hedging against uncertainty.

According to Booz & Co.: Two hundred and eight automotive executives from more than 75 automotive vehicle manufacturers and suppliers participated in the online survey. Thirty-two percent of the respondents were employees of OEMs, and 68 percent work for auto parts suppliers. Three-quarters of the executives were from U.S.-based firms. More than 50 percent of respondents were VP level or above.

We're back... but only a little bit at a time (all images courtesy: Booz & Co) Picture 726 Picture 725 Picture 724 Picture 723 Picture 722 Picture 721 Picture 720 Picture 719 Picture 717 ]]> 5
GM Reports $1b Q1 Profit, Still Seeking “Competitive Levels Of Profitability” Thu, 03 May 2012 19:01:42 +0000

Once upon a time, GM’s North American operations spewed red ink across the firm’s balance sheet, with the whole mess kept afloat by relatively strong overseas operations. Now GM makes most of its money at home while its international divisions limp along. No, really: in its just-released Q1 financial report, GM reveals that some $1.7b of its $2.2b global EBIT came from its once-troubled home markets. What a difference a bailout makes!

GM CEO Dan Akerson sums up the situation with refreshing candor, noting

New products are starting to make a difference in South America, but Europe remains a work in progress. We’ll continue to work on both revenue and cost opportunities until we have brought GM to competitive levels of profitability. [emphasis added]

That GM is not yet experiencing the kind of hot streak one might expect from a global titan that’s been stripped of debt and loaded with government cash is self-evident. Like its share price, GM’s performance in the last quarter has been merely adequate. A billion dollars in profit is always a good thing, but around the world GM is still underperforming the market. In fact, The General lost .3% global market share. in Q1 2012, the third straight quarter of such declines, and GM’s share of the world market is now a full point lower than it was in Q2 of last year.

Even in the US market that now provides the lion’s share of its profit, GM is losing ground to the competition. North American market share has also fallen for the last three quarters, now standing at 16.4%, some 2.4% lower than Q2 2011. US dealer inventories jumped dramatically in the quarter as well, from 583,000 to 713,000. All this in the face of above-average incentives (as a % of average transaction price) and subprime financing (8.2% compared to an industry average of 6%). In light of these developments, GM’s ability to earn the majority of its profits in North America speaks to its bailout-streamlined cost structure. Still, there’s no denying that things are not headed in the right direction.

GM Europe continues to be the source of the most serious bad news, although its $300m loss is half of the Q4 2011 number. Still, restructuring and plant shutdowns will cost GM a pretty penny at some point in the not-to-distant future, and until that bitter medicine is administered, GME can only try to control its losses. GM South America turned the corner into profitability, yielding a $100m gain on its lowest production volume in over a year (albeit with steady market share).

But GM’s opaque “International Operations,” which include Korea, Australia and the crown jewel of China show some of the most troubling signs of malaise. With costs rising faster than volume and pricing gains could make up for, GMIO’s EBIT declined by $100m compared to Q1 2011. With the Chinese market cooling off, GMIO is also losing market share at a steady .1% per quarter for the last three quarters. Given how crucial China is to GM’s global future, this is not a promising development.

This is not a return to “Deathwatch” territory by a long shot, as GM still has $31.5b of government cash and equivalents on hand, and $37.3b of available liquidity. But the premise that GM simply needed a bailout in order to soar to global dominance is certainly wearing thin. And with the government waiting for an uptick in GM’s stock price to sell its stock at a politically-palatable price, mediocre results like this will allow the stigma of government ownership to linger.

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The 12 Most Profitable Vehicles Since 1990 Wed, 23 Nov 2011 18:49:24 +0000

What matters in the world of cars? It’s a question we’re always asking here at TTAC, and depending on your perspective, the answer could be almost anything. But for all of their cultural significance, cars are ultimately a business, and if you had to boil down the value of a vehicle to one single attribute, it would have to be profitability. But that’s a tough measure to make, considering automakers don’t typically break out profits by vehicle, let alone by model line. Which is why I was so excited to see a list of the 12 most profitable vehicles since 1990 compiled by Max Warburton of Bernstein Research, and published in Automotive News Europe [sub]. So, what’s the most profitable vehicle in modern automotive history? The answer can be found just after the jump…

1. Ford F series
2. GM full-sized pickups
3. Dodge Ram
4. Mercedes S class
5. BMW 5 series
6. BMW 3 series
7. Mercedes E class
8. Lexus RX SUV
9. Jeep Grand Cherokee
10. Honda Accord
11. Porsche 911
12. Toyota Camry

Perhaps not the most surprising list imaginable, although the obscene profitability of pickups may just take your breath away. According to Warburton’s research, the “big three” American pickup models created $108 billion in pre-tax earnings since 1990, about the same amount as the rest of this list combined. As Warburton explains

The sweet spot for the industry is high prices and decent volumes (BMW 5 series, Mercedes E Class) and medium-sized price points and massive volumes (Ford F-series pickups, SUVs)

But, according to the respected analyst, that may be changing. Not only are pickup profits going to face pressure from emissions regulations, but there’s another dynamic worth noting:

Average volumes per product and body style are falling because the market is fractured into smaller and smaller sub-segments.

In short, per-model profitability may already have peaked for the industry. Which is why per-platform profitability is taking center stage. Hopefully we’ll soon see some new analysis in this regard…

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Musk Sees Tesla Profit In 2013, But Losses (And Issues) Are Still Piling Up Mon, 31 Oct 2011 19:18:05 +0000

According to Tesla CEO Elon Musk, the EV luxury brand has pre-sold all 6,500 units of its new Model S to be built next year, and the company is on-track for a 2013 profit. Bt if you’re comparing Tesla to the erstwhile EV darling BYD in order for it to look good, you have to wonder how good things really are. If anything, Tesla should be compared to Audi, an established (and hot) luxury brand with the same EV technology and one of Tesla’s founders on board. Losses for this fiscal year are estimated at $437m, and Tesla’s crucial loans from the Department of Energy are attracting a distracting investigation in the wake of the Solyndra scandal (but hey, Musk is “personally guaranteeing” those loans, so no worries…). And, in a truly puzzling move, Tesla is ignoring the SAE J1772 protocol for rapid EV charging because it isn’t sexy looking enough. As EV guru Chelsea Sexton puts it to the New York Times

It’s hardly unusual for Tesla to zig where the rest of the industry zags. But it’s particularly counterintuitive not to use the J1772 standard, since Model S drivers will be more interested in public charging than Roadster owners. Tesla’s proprietary connector choice requires getting customers to care about form over function on one of the most utilitarian aspects of the car. How many people stare at a gas nozzle and think, ‘If only that were better looking’?

Selling out of a first-year production run is good news, but hardly surprising (all plug-in vehicles are currently capacity-constrained). Preventing buyers from using public charging infrastructure because it’s unsexy is the kind of surprising news that could seriously damage Tesla’s long-term efforts. Meanwhile, we still don’t know how this company will do with regards to manufacturing quality and reliability, especially as volumes ramp up to 20k units per year. After all, Tesla’s hype and niche marketing efforts are well-proven… it’s all the other aspects of building and selling cars that we’re still unsure about.

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“Brave New World”: AlixPartners Predicts Auto Market Headwinds, “Competitive Convergence,” And Other Challenges Fri, 29 Jul 2011 21:13:28 +0000
AlixPartners, the consulting firm that led GM’s reorganization efforts, has put the perennial optimism of auto industry analysts on notice, introducing its 2011 Automotive Outlook by arguing

The AlixPartners 2011 Automotive Outlook finds that while automakers and suppliers have seen profits bounce back handsomely – North American original equipment manufacturers (OEMs) posted $12.5 billion in 2010 profit on a net margin of 4.6% and North American suppliers reaped $8.2 billion on a net margin of 4.3% – no one should be tempted into thinking that things are now back to “normal,” or at least the normal defined by the consumer-incentive-induced sales levels of the past. In sync with its past annual auto studies, AlixPartners continues to predict that U.S. auto sales will climb slower, and to a lower peak, than many others are predicting. Specifically, the firm estimates U.S. auto sales will reach just 12.7 million units this year and only 13.6 million in 2012.

This is a tough moment for us: on the one hand, pessimistic economic forecasts don’t make anybody happy… on the other hand, the AlixPartner outlook is a significant validation of TTAC’s longtime bearishness. So rather than either moping or self-congratulating, let’s just take a look at why AlixPartners is so gloomy about the near-term outlook.

First, a little more on the market outlook, which predicts

13% compound annual growth rate (CAGR) for small cars and a 7% CAGR for small crossover vehicles between now and 2015 in the U.S., as large cars, SUVs and pickups are expected to see a CAGR of just 2%, respectively, in that time. The study also finds that pickup-truck sales will be hurt by the continuing housing crisis. U.S. pickup sales for 2011 are estimated to reach only 1.7 million units, well below the recent peak of 2.9 million in 2006.

But it turns out that weak demand in the US, driven by under- and unemployment, a weak housing market and a slow recovery, is only part of the industry’s challenge. John Hoffecker, managing director at AlixPartners sets the stage:

It’s a cliché, but the auto industry really does face a ‘brave new world,’ and the differentiators for winning in the world we are transitioning to will be significantly different from the past.The good news is that most of the U.S. players now have their costs in line to capitalize on a slow, steady sales recovery. On the other hand, the industry is facing some truly momentous, and momentously expensive, decisions on everything from powertrain choices to emerging markets; and for OEMs to count on a U.S. sales bubble like in the last cycle – artificially-induced to begin with – to help fund all that is wishful thinking at best.

Technologically, the auto industry could well be on the cusp of its biggest set of changes since the invention of the internal-combustion engine more than 100 years ago. This will put unprecedented pressure on all players to pick the right business models, the right legal and capital structures, and the right partners. And, this all comes at a time of potential margin erosion as the industry, in general, shifts to smaller vehicles, both for regulatory and consumer-preference reasons. Preventing that erosion will be key.

What makes a convergence of technological and sales challenges so potentially dangerous, is what AlixPartners calls “competitive convergence”:

One of the striking features of the new automotive industry is the convergence among competitors around the globe in areas including cost, quality, production processes, supply chain, management expertise and, last but not least, profitability. Profitability parity is evidenced by the fact that last year earnings-before-income-taxes (EBIT) margins for automakers globally clustered in a tight band ranging from 4.3% to 5.7% — with OEMs in China and India at 5.2%, while suppliers from China and India enjoyed an EBIT margin of 7.5%, the highest in the world.

This competitive convergence, the study says, will require big leaps forward in differentiators such as consumer-focused innovation, product-development excellence, truly strategic partnerships at various places around the globe, careful brand-building and, perhaps above all else, a general focus on speed – in achieving either first-mover advantage or fast-follower leverage.

With the bulk of sales growth shifting to emerging markets, commodity costs rising and overcapacity lingering, the US market is hardly the engine that drove the global auto business that it once was. It’s still hugely important, as the second largest national market in the world, but the case for bearish behavior in the US market is strong. The real question in my mind after reviewing this report is: how will the automakers respond? Will our debt-weakened demand be met with a malaise of underinvestment? Given the technological arms race, one would hope not, but rising costs (from technology and raw materials) and sluggish demand do not make for a great combination. Consumers have nearly as much reason for concern here as the automakers themselves…

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Chew On That: Ford Announces $8.3 Billion Profit Fri, 28 Jan 2011 12:05:00 +0000

Ford did not disappoint and today announced its biggest annual profit in a decade. According to a Ford release, the company booked $8.3 billion in pre-tax profits for 2010. That is a $3.8 billion increase from a year ago.

Ford ended 2010 with Automotive gross cash exceeding debt by $1.4 billion, an improvement of $10.1 billion from year end 2009. Ford ended 2010 with $20.5 billion of Automotive gross cash, and a debt of $19.1 billion.

Fourth-quarter net income fell to 5 cents per share from 25 cents per share after a $960 million charge for completing a debt conversion in the third quarter. The fickle stock market did not like that. The F share lost 6.3 percent  in premarket trading. It dragged down GM,which lost 2.1 percent to $37.84 before the bell.

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Carried By New Grand Cherokee, Chrysler Loses $84m In Q3 Mon, 08 Nov 2010 16:40:44 +0000

Chrysler lost $84m last quarter on an operating profit of $239m, showing slow but consistent progress from last quarter’s $172m loss [Press release here, slides here, both in PDF]. Chrysler has lost $453m since the beginning of this year. Overall deliveries and sales were down slightly compared to Q2 2010, but thanks to a strong launch for the profit-generating Grand Cherokee, revenues were up just over 5 percent to $11b. As the slide above proves, “Mix and Net Price” accounts for one of the biggest contributions to operating profit, and that’s largely thanks to the new Grand Cherokee which (at 12,721 units last month)  is the second-best selling vehicle in Chrysler’s lineup after Ram pickups. That’s a good sign for the future of a company that needed a hero, but there are some troubling signs under the surface.

But before we get to the negatives, it’s important to put Chrysler’s mix and pricing trends in context. Yes, it’s improved compared to 2009, but it’s actually declined since 2009 even as sales have remained largely flat. And with remaining launch vehicles largely falling into the category of refreshes and are occurring in less-profitable segments, it’s not clear that Chrysler can expect more strong growth in transaction price.

For one thing, launching new products costs money. Launch costs were reduced from Q2, adding to the Q3 bottom line, but they’re expected to zoom up to about one hundred million in the final quarter of the year. In support of those launches, Chrysler will spend a billion dollars in the final three months of the year on capital expenditures, up from $1.7b over the first three quarters.  If the products  launched with that money have the same effect as the Grand Cherokee,it will be money well spent. But will refreshed Sebrings and Journeys have the same result as an all-new, well-executed product in a profitable segment like the JGC? Only the future will tell.

Cash improved by $419m, but gross debt climbed upwards for Chrysler by about $800m, and net debt increased by $400m to $3.8b. That debt cost Chrysler $308m in the third quarter, and net interest expense has amounted to $899m year-to-date.

But the real question is what happens to sales. Through the first three quarters of this year, 82 percent of Chrysler’s sales were 2010 models and 18 percent were the new 2011 models. As a result, sales have been flat and Chrysler has struggled to turn small operating profits into real net profit. Improvement, as it comes, has been based on mix, specifically an ever-growing dependence on Ram and Grand Cherokee profits. The market has been kind to trucks and SUVs in 2010, but this posture leaves Chrysler especially vulnerable to short-term fuel price volatility. More fuel-efficient offerings are on the way, but their profitability will not make up for any eventual decrease in Ram and Grand Cherokee volume.

And even Ram is underperforming. As Marchionne put it, the truck market is recovering, but Ram isn’t capturing the share of that recovery that it should “We got our nose bloodied going into the recession,” he said, “and we’re not getting enough back on the way out.” But Marchionne also noted that the competition enjoys “historical advantages,” likely referring to Ford’s immense success this year with its F-Series line. Marchionne seemed unclear about how to upset the truck order without killing profitability, and seemed to accept that Ram would remain the third player in the truck market.

Despite modest results, Chrysler increased its guidance for full-year results. Chrysler did note that net debt could increase to $5.3b and even as much as $6.3b by year-end, and combined with increased expenditures, this could cause even modest improvements in Modified EBITDA and operating profit to result in losses. In the end though, Chrysler is surviving, which we’ve always said was its major goal for this year. But it’s been close: had the market not been accepting of less fuel-efficient offerings like Ram and Grand Cherokee, Chrysler would be in a world of hurt. The major question for this final quarter is whether the refreshed products create the kind of financial benefits that Grand Cherokee has, and whether fuel price volatility attacks this profit center (not to mention Chrysler’s forthcoming less-efficient models like Durango, Charger, and 300). Chrysler’s walked three quarters on a high-wire, and it hasn’t tumbled yet… but sooner or later, momentum will have to be built.

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GM Releases Preliminary Q3 Results, Estimates $2b Net Income Thu, 04 Nov 2010 14:51:03 +0000

With its IPO hitting markets, GM has released limited preliminary results that show the firm earned $1.9b to $2.1b in the third quarter of this year. That performance outstripped Ford’s $1.73b Q3 profit, and GM’s $36b in revenue also beat Ford’s $29b figure for the same quarter. GM also announced that it expects to generate positive EBIT in the fourth quarter, although it warned that its Q4 results would not be as strong as the previous three quarters in which GM claims to have earned $4b to $4.2b in net income attributable to shareholders. The projection of weaker Q4 results proves that political considerations weren’t the only factor pushing for an immediate post-election IPO. One note of warning, however: GM has not released complete data on its results, meaning we haven’t seen the impact of GM’s recent debt-cutting moves on cashflow. On the other hand, with a $5b revolving line of credit secured and profits rolling in, GM isn’t likely to be facing liquidity problems in the immediate short term. We’ll wait for full results before we pass final judgment, however.

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Ford Reports $1.7b Profit For Q3 Tue, 26 Oct 2010 14:57:51 +0000

Ford’s profitability outstripped even yesterday‘s $1.37b estimate, coming in at a whopping $1.68b, as Ford made mad money in the North American market in the 3rd Quarter of this year, for a fifth consecutive profitable quarter. Global revenue was down by about $1b, but excluding Volvo from Q33 2009 results, revenue was actually up $1.7b. $1.6b of Ford’s profitability came from North America, as its most crucial market carried the company over weak overseas results. And with $900m in positive cash flow, Ford says its “automotive cash” will equal its debt by the year’s end, sooner than it had previously forecast. Ford paid of $2b of its revolving credit line last quarter, and plans to pay off the final $3.6b it owes the UAW VEBA trust in Q4. By the end of the year, Ford estimates it will have reduced its overall debt by $10.8b over the course of 2010. Hit the jump for a few key slides from Ford’s Q3 financial presentation.

Ford’s complete slide set can be found here in PDF format, but we’ve assembled a few of the most telling slides here.

Clearly North America is where it’s happening for Ford.

But where is Ford pulling those profits from? Volume and market share are up, and as identified yesterday, Net Pricing is a major contributor. Selling Fiestas for more than the cost of a Corolla is a great way to inflate already-healthy profits. But mix is important as well. Much of Ford’s volume gains have been in profitable trucks, as the F-Series is having one of its better years in some time.

After all, Ford’s North American market share actually declined significantly in the third quarter… but its retail share actually increased. This seems to prove that Ford is getting off the fleet-sales jag that has brought overall sales levels up, and has particularly buoyed the Detroit firms. And why not? Ford is making enough money due to consumers choosing its more profitable products, and by securing better transaction prices for its vehicles. Though Ford ran at 30 percent fleet for most of the year, it hasn’t seemed to hurt demand, and Ford’s proving that it can lay off the “empty calorie” volume and focus on making money.

And making money it is. If Ford can end the year with more cash than debt and keep its sales and pricing momentum up into next year, when key products like the 2012 Focus launch, it will cement the Blue Oval’s status as the Detroit automaker to beat.

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Marchionne Blames Bailout For Profit-Free 2010 Tue, 24 Aug 2010 15:08:52 +0000

We’re hardly shocked by the idea that Chrysler won’t turn profit this year. After all, Auburn Hills has barely made its minimum monthly sales volumes (at best, and with rampant incentives and fleet mix) this year, and lost $50m+ in “industrial inefficiencies” on the Jeep Grand Cherokee launch alone [Q2 results analysis here]. With plans to close out the year with a non-stop barrage of product launches and attendant media spending, it would take a minor miracle for Chrysler to break even. But we’ve essentially known this all for some time… what’s truly shocking is that Chrysler’s CEO Sergio Marchionne actually admitted to the media that Chrysler won’t turn a profit.

Ever since Marchionne rolled out his Five-Year plan for Chrysler last October [full TTAC coverage here], he’s baited his critics and insisted that Chrysler would at least break even this year. And really, he’s had little choice but to stick to his guns, as the Chrysler turnaround is predicated on the assumption of continuous sales and profit growth. And after presenting himself as an anti-incentive, anti-volume-pushing executive, the sales, incentive and fleet mix numbers coming out of Chrysler are killing Marchionne’s credibility. Which is probably why he has finally admitted that, as the DetN paraphrases

it will be “difficult” for the automaker to turn a net profit this year.

It doesn’t sound like much, especially given that top-end estimates for 2010 financial performance in the Chrysler Five Year Plan estimated a maximum profit of $200m. But by Marchionne standards, this is a big admission. Not that he doesn’t have an excuse, of course.

And it’s an excuse that we’ve seen coming ever since Bertel picked up on the first hints of whining about liquidity at Auburn Hills. At yesterday’s factory tour with Vice President Joe Biden (money quote: “you’re doing a heck of a job, Sergio”), Marchionne trotted out the old cost-of-cash argument again, telling Reuters that

Chrysler would already be showing net profits if it had not borrowed from the U.S. Treasury in order to have operating cash… “All the money given to us was debt”

See, if taxpayers had just given Chrysler $14b with no expectation of ever seeing it again, there would be big profits in Auburn Hills right now. But then, what business wouldn’t turn a profit after getting its debt rinsed clean, its bad assets spun off, and a $14b no-obligation cash injection? But after suggesting that taxpayers are somehow responsible for Chrysler’s woes, Marchionne has the gall to claim that
We are delivering on everything we said. We are doing it quietly, keeping our head down
Which is patently untrue. Marchionne has made a sport of lashing out at his critics, while failing to deliver meaningful progress on the major problems facing Chrysler, namely that it can’t even make minimum volume without relying on fleets and incentives. If Marchionne were actually “doing everything he said he would do, quietly,” Chrysler might not be topping the industry’s fleet and incentive mix (or claiming that he could… Autosavant did the math and reckons Marchionne’s goal of a 25% fleet mix is mathematically as good as impossible). More to the point, when he did bring his head up to comment on Chrysler’s condition,  he might take ownership of the demand-side problems, rather than exacerbating them by blaming taxpayers for insufficient generosity. After all, GM has proved that perceptions can linger long after product starts improving. Blaming the bailout for a lack of net profit is not the way for Chrysler to work its way back into the hearts of American consumers.
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Quote Of The Day: Professional Jealousy Edition Mon, 26 Jul 2010 16:27:00 +0000

When Chrysler’s CEO Sergio Marchionne took the stage over the weekend to honor Lee Iacocca with an induction into the Walter P. Chrysler Legacy circle, he admitted to feeling unworthy of honoring Chrysler’s most famous executive in recent memory, and called Ford’s Alan Mulally and the UAW’s Bob King to help share the honor. And being the business-obsessed type he is, Marchionne wasn’t about to let Mulally get on stage without at least a mention of Ford’s just-announced $2.6b profit. And though the recognition and ensuing awkward “moment” helped add to the usual Detroit gala hometown booster vibe, it also highlighted the fact that Chrysler still has yet to announce its Q2 results.

Marchionne has said that Chrysler will report a Q2 operating profit (explained at least in part by the premise that “they are likely making money from fleet sales now, while it was impossible to do before bankruptcy”), although there’s been no indication that a net profit could be in the cards. And based on the body language differences between the two CEOs, it’s clear which is more comfortable with his lot. More evidence of this can be seen in the following video of te gala’s highlights…

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Ford Reports $2.6b Q2 Profit Fri, 23 Jul 2010 15:38:33 +0000

Ford Motor Company has announced its second-quarter results for 2010, and the company says it earned $2.6b over the last three months on $2.9b in operating profit before special items. In a departure from the typical model for domestic automakers, Ford’s growth was largely driven by improvement in North American results: Ford earned $1.9b in pre-tax operating profits in North America after boosting its Ford brand to the top spot in the American market over the first six months of 2010. Ford earned $31.3b in Q2 revenue, a $4.5b improvement over Q2 2009 (a $7.4b improvement excluding Volvo). Ford’s operating cash flow improved by $2.6b despite ending the quarter with $21.9b in cash, a $3.4b drop since the end of Q1. However, that drop in cash-on-hand was the result of a $3.8b debt reduction, and Ford figures its total automotive liquidity (including all credit facilities) is $25.4b. Automotive debt was reduced by about $7b, to $27.3b, the result of both the UAW Retiree Medical Benefit trust buydown and a $3b repayment of a revolving credit line. The shutdown of Mercury has reportedly cost Ford about $229m so far, and Ford expects that amount to equal slightly under half of the total cost of eliminating the brand.

Ford’s results aren’t very surprising given the fact that it Ford brand outsold all other brands over the first half of 2010, but the healthy profit shows that a rumored dependence on fleet sales wasn’t enough of a factor to weaken Ford’s financial results. Though debt levels remain high and its overseas performance remains weak, Ford has proven once again that it’s the healthiest American automaker… if only in terms of its North American market performance.

Full financial release in PDF format here, Q2 results presentation slides in PDF format here, Ford Credit results in PDF format here

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GM Q1 Profit: $865m After Dividends Mon, 17 May 2010 14:02:42 +0000

Well, the suspense is over. General Motors announced its Q1 earnings this morning, and for the first time since 2007 the quarterly numbers are positive. GM’s net revenue jumped to nearly $31.5b on strong performances from its North American and GM International Operations (GMIO), and across-the-board sales improvement for the Chevy brand. General Motors Europe was The General’s sole unprofitable division for the quarter, losing half a billion dollars while it waits for a deal on financial assistance to clear. Operating cash flow was $1.75b, with about $755m of that going towards capital expenditures. That left just under a billion dollars in free cash flow, as GM finished the quarter with $35.7b in cash on hand. Net income attributable to shareholders was $1.068b, less $203m for cumulative dividends, for a total net profit of $865m [Full financial highlights in .doc format available here].

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Ford Shareholders Meeting: Profit This Year, But No Dividend Thu, 13 May 2010 21:39:59 +0000

After four straight profitable quarters, Alan Mulally’s forecast today of a “solidly profitable” 2010 shouldn’t come as a huge surprise. But, as Executive Chairman Bill Ford put it to Ford shareholders at the company’s annual meeting [via AP],

It is the very early days in our recovery. We still have a lot of debt

And he’s not kidding. As of the end of Q1 2010, Ford was carrying $34b in debt. And though Ford faces a higher cost of borrowing because of its staggering debts, Bill Ford was clear that he wouldn’t trade places with Ford’s Detroit competitors, which cleaned out their balance books, at the expense of government bailouts and accompanying PR problems. After all, while GM and Chrysler were rebuilding, Ford managed to outperform both of them last year by gaining sales and market share. And Ford’s leadership sees that momentum carrying forward into next year.

Alan Mullaly told stockholders [via BusinessWeek] that

We expect to see continued improvement in 2011. We’re clearly on a path now of profitable growth. The improving global economy is a slow gradual recovery especially in the United States, but with very solid fundamentals. Also, we’re bringing on more and more products.

But the news out of FOrd’s annual shareholder meeting in Delaware isn’t all good. After a meteoric rise in its stock price since hitting lows in the $1 range last year, Ford’s challenge is in convincing stockholders that more growth is still possible.Says Efraim Levy of Standard & Poor’s:

Ford has taken advantage of the weakness of their competitors, and now the challenge will be to continue to outperform them. They’re not out of the woods yet.

And that’s because so much money has been made on Ford stock since last year’s low, that pressure to sell is inescapable. One hedge fund manager who recently sold off Ford holdings for an average return of 275 percent explains:

The company is doing fantastic but I don’t know if there’s a lot of upside. When Ford’s outlook was very cloudy and not as positive, there were regular buy signals.

Further hurting chances of further growth in Ford stock is the news today that shareholders had voted down a plan that would redistribute the Ford family’s closely-guarded preferred-share voting majority to the rest of Ford’s shareholders. This is the sixth time such a measure has been voted down, although with 30 percent voting in favor, this time was the closest it’s ever been to passage.

Moreover, Ford will not institute a dividend for stockholders, despite the projections of profit. That decision underlines the importance of reducing Ford’s debt load. Bill Ford explains that

the most important thing we can do as a company is get the balance sheet in order.

But there’s more to running an automaker than merely attracting equity investment, and Ford’s operational strength means CEO Alan Mulally is the man of the hour at the Ford shareholder’s meeting. Bill Ford waxed effusive about the former Boeing CEO, who has rapidly become one of the most respected executives in the industry, saying

Alan has been completely superb for this company. We’d like him to stay as long as he wants.

And with profits looking likely this year and the next, Ford’s shareholders can rest assured that their investment is about as strong as any other in the auto sector… especially if they bought in at the $1-$1.50/share low last year.

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Nissan Leaf “On Track” To Make Money In First Year On The Market Fri, 30 Apr 2010 17:07:33 +0000

With over 8,000 pre-orders already logged, Reuters reports that Nissan is well on its way to selling out its capacity-constrained, 25,000-unit first-year production run of Leaf EVs. Better yet, Nissan’s North America director of product planning and strategy Mark Perry says that, with those sales volumes, the Leaf will actually turn a profit for Nissan. He tells Reuters:

We are making money at the price that we announced. We priced the car to be affordable. We priced it for mass adoption

Considering it took Toyota (an undisclosed number of) years to turn a profit on its hybrid synergy drive technology, that’s quite the accomplishment. Of course, Nissan isn’t doing it all alone: hefty tax credits are certainly helping. In California, which is widely seen as the most promising market for EVs, federal and local tax credits combined could bring the Leaf’s $32,780 price to a Prius-beating $20,280.

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Ford Pulls In $2.08 Billion Q1 Profit Tue, 27 Apr 2010 14:09:17 +0000

The Ford Motor Company released its first quarter earnings today [Full report here, Slide presentation here (both PDF)], revealing that it gained over $2b in net profit on rising revenue and improved operating margins. Sales receipts rose to over $28b, and with each of Ford’s regional units posted operating profits, Ford’s gross automotive cash rose by $400m to $25.3b (although operating cash flow was $100m in the red). North American operations earned $1.2b in pre-tax operating profit, South America earned $203m, Europe recorded $107m and Asia-Pacific-Africa brought in $23m. Ford Credit racked up $828 in pre-tax profits, as lower depreciation levels improved results. Despite these fine results, Ford finished the quarter with $34.3b in automotive debt, a $700m increase from the beginning of the year. Ford paid $492m in interest on that debt in the first quarter.

Improvements in revenue and profitability are cause for celebration in Dearborn, but negative cash flow and increases in debt are niggling concerns. Especially when Ford’s CFO Lewis Booth is warning that these Q1 results are better than he expects for the rest of this year. Booth tells the Freep:

It would be unwise to think of the $2 billion as a running rate for the year

Ultimately though, Ford’s sales are up, and results are improving across the company’s global operations, meaning Booth still expects profits, albeit smaller ones, this year. And Ford isn’t trying to hide its optimism, increasing production goals by 30k units in the second quarter. Meanwhile, with 45 cents per share in earnings, Ford’s Q1 results beat Wall Street’s expectations, meaning the company’s stock should stay buoyant. Right now, that’s about all an automaker can ask for.

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Hyundai Nets Over $1b, Breaks Quarterly Profit Record Again Thu, 22 Apr 2010 17:52:53 +0000

Building on solid financial results in the fourth quarter of last year, Hyundai has announced today that it turned a net profit of about $1.02b (as in billion) in Q1 2010. That shatters a previous record of $650m, recorded in the second quarter of last year, and eclipses last year’s $203m Q1 net profit. According to the Detroit News, Hyundai raised sales revenue by nearly 40 percent last quarter, with global gross receipts hitting $7.6b. Sales volume was up 36.6 percent, to 842,037 units. Though the Chinese and Indian markets drove growth with 48 and 34 percent volume increases respectively, the big news comes from the US, where Hyundai’s volume grew 78.3 percent and revenue gained 61.5 percent. And if Hyundai’s margins seem surprisingly attractive, consider that the dollar’s recent declines against the Korean Won bled off some of that US-market profit. Oh, and that billion-dollar profit doesn’t include results from Hyundai’s sister-firm Kia, which reports Q1 financials tomorrow. Get down with your bad self, Hyundai!

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Did GM Lose Money Again In Q1? Wed, 14 Apr 2010 18:20:32 +0000

Don’t ask Chairman/CEO Ed Whitacre. His only comments so far on GM’s Q1 2010 performance comes from a memo leaked to Reuters, in which he says:

In January, I said we could earn a profit in 2010, if everything falls into place. Our first quarter financial results will show us an important milestone, and I’m pleased to say that I anticipate solid operating results when we report our first quarter financials in May

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Marchionne: Chrysler Will Break Even This Year. Really. Tue, 30 Mar 2010 17:56:30 +0000
Poor Sergio Marchionne… the man can’t go anywhere without being interrupted. The Fiat/Chrysler CEO’s speech today in the buildup to the New York Auto Show was interrupted twice, once by the the ubiquitous Teamster protesters, and once by a test of the hotel’s fire alarm system. But then, maybe people would let him speak if he had more to offer than the same lukewarm assurances that everything is going marvelously in Chrysler-land. The Detroit News summarizes his speech by saying Marchionne believes Chrysler will sell the 1.1m vehicles in needs to break even this year, and that it will do so without getting pulled into an incentive war.Which would be hard to do anyway, considering Chrysler spends more on incentives at “normal” levels than any of its competitors.

Marchionne apparently did not say anything about fleet sales though, which is understandable considering at least 50 percent of Chrysler sales to date in 2010 are said to be profit-sapping fleet sales. But then, there’s only so much Sergio can do anyway; he revealed today that he has 78 people reporting directly to him between Fiat and Chrysler. Besides, we don’t have to believe anything. If sales for March fall below 95k units (which will be released later this week), Chrysler will officially be falling even further behind its sales targets. Without a serious short-term turnaround, there will be no break-even this year, and Chrysler’s entire five-year turnaround plan could be called into question. Whether Sergio wants to get in front of that information early, or let it continue to hurt his credibility is entirely his decision.

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BYD Charges Ahead Mon, 15 Mar 2010 14:36:26 +0000

Chinese battery maker and aspiring automaker BYD earned $215m in the fourth quarter of 2009, bringing its net profit for last year to $555.2m, reports Automotive News [sub]. BYD’s performance outstripped analyst estimates, which projected fourth quarter profits of $130.5m, and full-year profits of $473.2m. Though the Chinese auto market grew 46 percent to 1.6m vehicles, 47 percent of BYD’s 2009 sales came from the firm’s cell phone battery business, which is expected to give back recent gains as the global economic crisis takes its toll. Not so with BYD’s auto business: the firm has raised its 2010 car sales projections 14 percent, with sales of 800k foreseen. And as China’s car market takes off, BYD, which has one of the nation’s best-selling cars in its F3 compact, is expected to keep growing. Says one JP Morgan analyst:

BYD is a company that can’t be underestimated. If the Chinese vehicle market expands 10 percent this year BYD’s sales will grow at least 40 percent — 50 or even 60 percent is also a possibility.

And those plans are moving forward rapidly. The LA Business Journal reports that BYD is shopping for North American headquarters in LA County, and could be looking for a production site as well. Portland, Oregon has also been in the running to host BYD’s US operations. With local governments eager to attract “green-collar” jobs, BYD can expect the red-carpet treatment (and hosts of local tax abatements) as they prepare to bring the fight to the US and European markets.
Backed by cash from Warren Buffett and technical cooperation with Daimler and VW, BYD remains the front-runner among Chinese firms who are anxious to back up their domestic-market success with a seat at the table with the global giants. But as with so much that emerges from China, their vehicles are under-tested, and if BYD is pushing for acceptance before its product is ready for prime-time, it could give new life to anti-Chinese-car prejudices. Needless to say, BYD is one of the firms we’ll be watching closely over the next several years.
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Toyota: Recall To Cost $2b This Quarter, Dent Improved Financial Outlook Thu, 04 Feb 2010 14:42:36 +0000

Agressive cost-cutting and improved sales yielded $1.68b in net profit for Toyota in the three months ending December 31, reports a press release in the WSJ. Sales revenue climbed 10 percent to $58.2b in the October-December quarter, boosting operating profit to about $2b. This quarter alone though, Toyota reckons the recall could cost the company $2b in repair costs and lost sales. For the fiscal year, ending on March 31, Toyota says the final impact should be limited to about $900m in losses on an operating basis, and has revised its fiscal year net profit projection to about $900m (compared to a $2.2b loss projected in November).

The fact that the recall hasn’t wiped out Toyota’s improved financial projections can be credited to more than $6b in fixed-cost-cutting and over $5b in other cost cuts. “Pursuing quality and cost-reduction isn’t contradictory,” said Toyota Senior Managing Director Takahiko Ijichi. “We will continue to aim to reduce costs.” And he’d better be right, because these cost-cuts probably won’t be optional. Toyota is projecting only 100k lost sales from the recalls, and the numbers almost certainly don’t include the latest Prius brake issues. As with the recall itself, Toyota is moving aggressively, but is a long way from being out of the woods.

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Hyundai Quadruples Fourth Quarter Profit Sun, 31 Jan 2010 18:57:06 +0000

Hyundai’s fourth quarter profit quadrupled over last year’s fourth quarter results, reports Bloomberg, as net income hit $822m, up from $210m in the same period last year. Operating profit rose 44 percent to $722m. This comes despite an increase in the value of the Won, which has reduced profit on Hyundais exports, which make up half the firm’s revenue. And unlike other automotive firms reaping surprise year-end profits (like Ford), Hyundai’s gains come from increased sales rather than cost-cutting. Hyundai’s overall sales rose 14 percent to 3.2 million units last year, driven by growth in the US and Indian markets. Hyundai finished 2009 with just over five percent of the world market. Hyundai expects sales to rise 11 percent in 2010, and the firm is looking to take advantage of Toyota’s weakness by offering conquest incentives like those now offered by GM, Ford and Chrysler.

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Ford, Ford Credit Record 2009 Profit Thu, 28 Jan 2010 15:18:42 +0000

The Ford Motor Company [full results in PDF format here] earned net income of $2.7b last year, on pre-tax operating profits of $454m. The company enjoyed a strong fourth quarter with $868m in net income and an after-tax operating profit of $1.6b (excluding special items). Ford Motor Credit [full release in PDF format here] earned $1.3b in net income and $2b in pre-tax operating profit last year. Ford Credit’s receivables were down at the end of 2009 compared to 2008, with $93b receivable compared to $116b at the end of 2008, and leverage of 7.3 to 1.

Ford Motor’s revenue actually fell by about $20b in 2009, but profit was achieved through some $5b in

Automotive structural cost reductions… reflecting primarily lower manufacturing and engineering costs, a reduction in pension and retiree health care expenses, and lower advertising and sales costs as Ford completed major restructuring actions.

But if you break Ford’s operating profit down, it’s clear that the automotive sector still loses money (about $1.4b last year on $3oom cash burn), and relied on about $1.8b in financial services sector profit to clear the $454m operating profit number. Nearly half a billion dollars on an operating basis is still profit, but the core business clearly still has some signs of weakness.

The flip side to this is the fact that Ford closed the year strong with impressive fourth quarter results. The fourth quarter saw huge improvements in revenue ($35.4b) and automotive sector operating results (over $1b) compared to 2009 as a whole.

North American operations saw its revenue rise about $4.5b to $15.8b, on $707m operating profit. South America and Europe had operting gains in the $300m range on revenue improvements of about a billion dollars each. Africa/Asia Pacific continues to be a disappointing sector for Ford, with operating profit of under $20m only modest improvements in revenue. Meanwhile, Volvo got its act together, losing “only” $32m on an operating basis, which compares nicely to 2008′s $736m loss.

Ultimately, Ford ended the year with $25.5 billion of Automotive gross cash and $34.3 billion in Automotive debt. Still,

As a result of Ford’s 2009 U.S. financial performance, the company will pay profit sharing to 43,000 eligible U.S. hourly employees consistent with the 2007 UAW-Ford Collective Bargaining Agreement. The average amount is expected to be approximately $450 per eligible employee.  As previously announced, Ford is not awarding salaried employee performance bonuses globally under the company’s bonus plan for 2009 company performance. However, the company did announce that U.S. salaried employees will receive merit increases in 2010, and the company’s 401(k) matching program was reinstated on Jan. 1, 2010.

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