Profits at Ford Motor Company

Today the Ford Motor Company announced that it had actually made a reasonably decent profit ($997 million) in the third quarter of 2009. Unfortunately for the company that doesn't do much to offset the cumulative looses of over $28 billion in the three and a half years since the beginning of 2006.

Then there is the debt - some $24 billion - that will have to be paid back someday. Since there are only three ways to repay debt - issue more debt, sell shares, or use after tax profits - Ford will need to make significantly higher profits, for many years, before the long suffering shareholders see much, if anything, in the way of dividends.

Over the weekend, coincidentally, the membership of the United Auto Workers union rejected proposed mid-contract concessions that would have brought Ford's wage and benefit costs more in line with those negotiated by the state owned basket cases (Chrysler and General Motors). More importantly, the rejected changes also provided for more flexible work rules - the key to productivity improvements and cost reduction.

So, F0rd still has a problem going forward and management will have a major fight on its hands - at least if the company is to be returned to long term financial health - when the UAW contract is up for renewal in 2011.

Fifty years of skilled bargaining by the UAW, combined with management's pusillanimous weakness, created unaffordably high labor costs allied with abysmally poor productivity. If Ford CEO Alan Mulally is serious about the company's future, he will have to be ready to take a lengthy strike over pay, benefits and, most importantly, work rules.

Here is some advice for Chairman Bill Ford and for Mr. Mullally:

It's not what you pay your workers for working that creates an unaffordable cost structure, it's what you pay them for not working and because you allow them to work really inefficiently.

For those who are thinking about buying Ford stock on the good news: caveat emptor. Be very sure that what appears to be the light at the end of the tunnel is not the headlight of an oncoming locomotive.