New vehicles fuel Ford profit

Ford posted its best first-quarter profit in 13 years thanks to an improving economy and a lineup of fuel-efficient vehicles that reached showrooms as gasoline prices surged.

New arrivals like the Ford Explorer -- which gets 20 percent better fuel economy than the old version -- and the 40-mile-per-gallon Fiesta subcompact are selling well in the United States. Company profits are growing around the world. And Ford is charging more for its cars, helping offset the higher costs of steel and other materials.

The outlook for the rest of the year is also positive. Ford can likely keep its prices high because of earthquake-related shortages at rivals such as Toyota. Consumer confidence is growing, so buyers are more willing to invest in a new car. Ford predicts U.S. sales will rebound from a 30-year low of 10.4 million in 2009 to about 13 million this year.

On Tuesday, Ford Motor Co. said net income rose 22 percent to $2.6 billion, its best first-quarter performance since 1998. It was the company's eighth straight quarterly profit in its long climb back from near-bankruptcy five years ago.

Ford's revenues rose 18 percent to $33.1 billion. The company saw especially strong growth in Asia, where revenues jumped 31 percent to $2.1 billion. In India, sales more than doubled thanks to the popularity of the $8,000 Figo subcompact.

"Our team delivered a great quarter, with solid growth and improvements in all regions," Ford President and CEO Alan Mulally said.

With a strong lineup of relatively new small and midsize cars, Ford is in a good position as rising gas prices push drivers into smaller vehicles. The average price of a gallon of gas in the U.S. is now $3.87, up $1.03 from a year ago. Ford's newest small car, the redesigned Focus, can get up to 40 mpg on the highway.

Ford's bigger vehicles are also more efficient. Ford's F-Series pickup, the company's best-selling vehicle, now has a more efficient V-6 engine; around 37 percent of buyers chose that engine in March. Customers switching from a truck-based 2010 Explorer to the less expensive, car-based 2011 Explorer can save around $500 in gas each year, according to government fuel economy calculations. The revamped SUV is lighter and gets about 25 mpg on the highway.

Once, a shift to smaller vehicles would signal trouble for Ford, since it makes lower profits on them. But the profit gap between big and small is narrowing as buyers put more expensive options in compacts. One of the most popular options people are adding to the $16,695 Fiesta SEL is heated leather seats for $795. Such luxurious trimming was unheard of in small cars a decade ago, but it's the new reality as downsizing Baby Boomers demand more amenities and young buyers shell out money for perks like entertainment systems.

"This is a tremendous change in the automobile industry," Mulally said.

The average price of a Ford vehicle increased $2,515 to $33,173 in the first quarter, according to auto pricing site TrueCar.com. That was $3,000 more than the average price for the industry.

Ford raised prices to offset the rising cost of steel and other commodities. But Ford also got better prices for its vehicles because it offered fewer discounts. The decision was risky, because it cost Ford some market share in the U.S., Europe and South America. But Mulally said Ford needs to remain disciplined about its pricing, and he expects the company to gain back its share before the end of the year, in part because of shortages at Japanese automakers due to the March 11 earthquake.

"Clearly with this much disruption, the demand's going to outpace supply," Mulally said.

Ford still has trouble spots. Chief Financial Officer Lewis Booth said Ford's commodity costs are expected to increase by $2 billion by year's end. Sales of the Lincoln luxury brand are falling, and a planned revamp of the brand still two years away. Lincoln's U.S. sales slipped 11 percent in the first quarter. By comparison, sales at rival Cadillac rose 38 percent.

Ford also has substantial debt, the result of its 2006 decision to take out a $23.5 billion restructuring loan. But it's making progress repaying that debt. Ford ended the quarter with $16.6 billion in debt, down $2.5 billion from the beginning of the year.

The earthquake in Japan has had little impact on Ford so far. Booth said the company has lost production of 12,000 to 14,000 vehicles at its Asian operations, but doesn't expect the losses to affect the company's bottom line. Three assembly plants in Ford's Asia-Pacific region are closed this week because of parts shortages, Booth said.

"We're in world-class scrambling mode at the moment," Booth said, noting that some Japanese parts are being shipped by air to other regions to keep production on track.

The company earned 61 cents per share, compared to 50 cents per share in the same quarter a year ago. Analysts polled by FactSet had been expecting earnings of 50 cents per share.