While the US car industry gradually recovers, Ford Motor Co. is expected to post a first-quarter profit this week. North American production has also been reported to be rising. From 2006 to 2008, Ford has posted losses amounting to $30 billion. That is why analysts received a surprise when the carmaker was able to post a profit last year.
With the expectation that Ford will post a profit in 2010 as well, its investors are allowed to focus on the sustainability and strength of its turnaround.
Standard & Poor's equity analyst Efraim Levy described this occurrence to be progress and for it to be a long-term job. He added that the important thing is that the trajectory is in the right direction.
Analysts say that Ford has definitely benefited from the government bailouts of competitors General Motors Co. and Chrysler, as well as with Toyota Motor Corp.'s massive recalls.
But its edge could start to weaken with Toyota's move to intensify its incentives. Ford should also consider that Chrysler had reported a first-quarter operating profit and GM had repaid loans and saying that a profit in 2010 is possible.
Analysts say that for Ford would have to be consistent for it to be able to generate positive cash flow, reduce a massive debt load and eventually return to an investment grade credit rating.
Mirko Mikelic, a senior portfolio manager at Fifth Third Bank, said that Ford should have 6 to 8 straight quarters of solid results to show that it is "really turning the corner."
Mikelic said that Ford's bonds and equity will do well and it will be able to gain back its investment grade rating if it remains consistent as well as maintain US market share.
In late 2006, Ford had borrowed over $23 billion to fund a turnaround led by CEO Alan Mulally. It had mortgaged a majority of its remaining assets including the blue oval logo.