How Ford is taking on Toyota

By Joe Light, Money magazine staff writer


(Money Magazine) -- The auto industry is struggling not just here, but around the world. Yet you couldn't tell that from Ford lately. While rivals GM and Chrysler scrambled for bailout funds in 2008, Ford said, "No thanks."

In January, the company reported its first full-year profit since 2005. And with Toyota suffering from headline-grabbing defects, Ford gets to showcase its quality improvements.

Still, with massive debt and the car market down more than 30% from a few years ago, the company faces a bumpy road.

Winning back share

The automaker has a chance to gain more market share due to its competitors' woes.

Toyota's recall of more than 8 million vehicles (for acceleration problems linked to 56 deaths) gives Ford -- which lost its No. 2 ranking for U.S. sales to Toyota in 2007 -- a chance to regain ground.

Even before Toyota's problems surfaced, Ford's share had been on the rise, according to TrueCar.com. And in February its sales jumped 43%.

Chalk it up to improvements Ford has made in its quality. This year, Consumer Reports recommended more Ford models than Toyota vehicles.

The Ford Fusion also beat the Toyota Camry in the magazine's 2009 reliability survey. Says Morningstar equity analyst David Whiston: "We now expect Ford to outsell Toyota in the U.S. this year."

Fixing its mix

Long known for trucks, Ford is shifting its lineup for fuel-conscious consumers.

Gas prices are down from their $4-a-gallon peak, but Ford is betting fuel-conscious consumers are here to stay. The firm is continuing to speed up development of hybrid and electric technologies. And it's bringing the Fiesta -- and its 40-mpg highway rating -- from Europe.

"We previously made a pretty big bet on large vehicles, but we're trying to rebalance our lineup so we don't lose market share every time gas prices spike," says CFO Lewis Booth.

It's a gamble. "They'll be in deep trouble if Americans don't like it," says Gerald Meyers, former chairman of American Motors. Plus, it's unclear if Ford can find a way to make as much profit on each small car as it does per SUV.

Paying for the past

Although Ford has turned the corner on profits, its debt remains worrisomely high.

Ford was the only U.S. automaker not to declare bankruptcy. Still, it hasn't been a smooth ride. From 2001 to 2008, Ford lost $31 billion. And the firm's automotive division still sits on more than $34 billion in debt.

About $8 billion of that comes due in 2013, and Ford is in a race to grow its way out of trouble. "We recognize we have too much debt on our balance sheet, but we think the best way to fix that is by rebuilding our business," says Booth.

Ford posted a $2.7 billion profit in 2009, following a $14.8 billion loss the prior year. Analysts predict profits will continue to grow, to $3.6 billion in 2010. But if earnings hit a speed bump, Ford could be right back in the hot seat, worrying about its debt burden.  To top of page

Send feedback to Money Magazine
Frontline troops push for solar energy
The U.S. Marines are testing renewable energy technologies like solar to reduce costs and casualties associated with fossil fuels. Play
25 Best Places to find rich singles
Looking for Mr. or Ms. Moneybags? Hunt down the perfect mate in these wealthy cities, which are brimming with unattached professionals. More
Fun festivals: Twins to mustard to pirates!
You'll see double in Twinsburg, Ohio, and Ketchup lovers should beware in Middleton, WI. Here's some of the best and strangest town festivals. Play
Index Last Change % Change
Dow 16,479.31 79.64 0.49%
Nasdaq 4,377.95 61.88 1.43%
S&P 500 1,925.03 21.02 1.10%
Treasuries 2.22 0.04 1.88%
Data as of 10:34am ET
Company Price Change % Change
Apple Inc 101.95 2.19 2.20%
The Coca-Cola Co 40.40 -2.89 -6.68%
Bank of America Corp... 16.43 0.17 1.05%
Microsoft Corp 44.53 0.45 1.02%
Cisco Systems Inc 23.16 0.23 1.00%
Data as of 10:19am ET

Sections

McDonald's is struggling in markets around the world, especially in light of a food scandal in Asia that caused sales to tumble. More

In three years, all Chicago high school students will have to take a coding course in order to graduate. More

Startups focusing on "ag tech," or agricultural technology, are gaining the attention of farmers and investors More

Foreign workers, lured by false promises of good jobs and benefits in America, soon find themselves enslaved in plain sight as victims of labor trafficking, a report from the Urban Institute finds. Here's how it can happen. More

Market indexes are shown in real time, except for the DJIA, which is delayed by two minutes. All times are ET. Disclaimer Morningstar: © 2014 Morningstar, Inc. All Rights Reserved. Disclaimer The Dow Jones IndexesSM are proprietary to and distributed by Dow Jones & Company, Inc. and have been licensed for use. All content of the Dow Jones IndexesSM © 2014 is proprietary to Dow Jones & Company, Inc. Chicago Mercantile Association. The market data is the property of Chicago Mercantile Exchange Inc. and its licensors. All rights reserved. FactSet Research Systems Inc. 2014. All rights reserved. Most stock quote data provided by BATS.