Ford's strong third-quarter showing should put its European woes into perspective. In its $2.2-billion (U.S.) pretax profit virtually all the power came from North America, which cranked out its best performance since at least 2000. Heavy reliance on one region isn't ideal, long term. But in this instance it gives chief executive officer Alan Mulally more than enough breathing room to fix the ailing European business – as well as to bulk up in Asia.
The business in Europe is causing considerable pain, all the same. Mr. Mulally expects it to lose $3-billion over the next two years. But last week he announced plans to cut costs in the region by $500-million a year and cut assembly capacity by 18 per cent. And Ford is taking additional steps, such as letting the number of vehicles it keeps in stock fall by a fifth to around 40 days' supply. Considering his track record in turning Ford's U.S. business around without the direct taxpayer aid its rivals needed, Mr. Mulally deserves the benefit of the doubt for now.
Meanwhile, the North American operations are speeding along nicely. Pre-tax profit has risen above $2-billion and the operating margin has topped 10 per cent in all three quarters so far this year. Profitability per vehicle keeps rising – though Mr. Mulally and his crew caution the 12 percent margin in the most recent three months won't be repeated too often.
Even after propping up the European business, Ford is still set to make some $5.6-billion next year, according to analysts polled by Reuters. On that basis, the company is valued at just seven times earnings – a lowly multiple implying a stagnant performance all round rather than growth.
Yet industry sales in America are increasing, albeit at a moderate pace. And the company just hit record market share in both the Asia-Pacific and Africa region in general and in China in particular. Ford now sells more of its Ford Focus brand vehicles in China than in Europe or North America. The company's big Eastern region is still only a minuscule contributor to profit, earning just $45-million before tax last quarter. But the signs are that Ford is on track to make a third of its global sales there by 2015.
The challenge of fixing Europe should not be taken lightly. But Mr. Mulally and Ford's stock deserve more credit for the rest of the world.