Behind Ford's $7.2 billion swing into the black

A $7.2 billion swing, from red to black ink.

That's what Ford Motor Co. accomplished in 2010.

The magnitude of its turnaround crept up on us, in part because the company's results have been improving more or less since the second quarter of 2009. So by now, we're used to thinking that Ford is doing well.

But Ford's recovery is relatively recent -- and huge.

How did they do it?

Ford convinced customers to pay more for its vehicles. Then it sold more cars and trucks. Pretty much in that order.

Ford rode the industry rebound and gained share, too. But the most significant change, in financial terms, was getting higher prices for its products. Ford says it picked up $3.1 billion more pretax operating profits in 2010 than in 2009 just from pricing. It added another $600 million by improving the mix of vehicles it sells, e.g., selling more top-of-the-line pickups and relatively fewer strippos.

Ford gave the breakdown only in pre-tax operating terms. Other factors left it with a net profit of $6.56 billion.

What went right
Here, according to Ford, is the breakdown of the difference between 2009 and 2010: Ford's pretax results swung to a $5.3 billion profit in 2010 from a $1.9 billion loss in 2009, excluding special items. Here's what changed from one year to the next.
Higher net pricing$3.10
Higher industry volume$1.70
Adding to inventory$0.90
Product mix, other$0.60
Higher market share$0.20
Total Volume/mix$3.40
Currency gains$0.90
Parts and service profits$0.50
Subsidiary profits$0.10
Total Other$0.50
Structural costs*($1.20)
Commodities costs($1.00)
Other materials costs$1.10
Warranty, other$0.10
Total Cost Changes($1.00)
Net interest, fair market 
Value adjustment($0.40)
Grand Total$7.20
*includes higher costs for product launches
Source: Ford Motor Co.

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