Ford, Chrysler gain despite weak economy

Jeff Horwich Jul 26, 2011
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Ford, Chrysler gain despite weak economy

Jeff Horwich Jul 26, 2011
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Kai Ryssdal: Ford and Chrysler turned in respectable earnings numbers today — respectable, that is, considering the woeful state of the American economy. Ford’s now been profitable for two years running. Chrysler would have turned a small profit, if not for the $500 million it spent paying back government loans. Throw GM in the mix, and American automakers are riding high after near-collapse two years ago.

But Marketplace’s Jeff Horwich reports this is no time to nod off behind the wheel.


Jeff Horwich: The U.S. auto industry is parked in a paradox right now. Sean McAlinden is chief economist at the Center for Automotive Research.

Sean McAlinden: Sales aren’t growing fast this summer at all because of the unstable and uncertain economy. On the other hand, the companies are profitable.

So how’s that happen? First, you have Acts of Man: the carmakers emerged from near-death with lower labor costs and better products. Then you have an Act of God: a tsunami that crippled the selection available from Honda and Toyota.

Analyst Dave Sullivan of AutoPacific says consumers who are car-shopping are more often checking out American cars — and paying full sticker price.

Dave Sullivan: Inventories for used new vehicles are really tight right now, and that’s really playing to automakers’ advantage in terms of reducing incentives and having to eat away at the bottom line.

The rest of the year looks uphill: the Japanese are ramping back up; raw material costs are rising; Ford, Chrysler and GM all start bargaining new union contracts this week. And then there’s the economy. Still, Sean McAlinden of the Center for Automotive Research says the U.S. automakers are able to operate lean — for a while.

McAlinden: The companies are in a position now to make good money at much lower volumes. Which means if higher volumes ever do return, they’re going to be obviously more profitable. But we’ve been waiting and waiting and waiting for that pent-up demand to show up and it hasn’t.

In the meantime, today’s earnings suggest the Detroit Three are much better positioned than before to wait things out.

I’m Jeff Horwich for Marketplace.

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