FordFord's (F) dramatic turnaround has captured the attention of investors and car buyers alike. Having raised a do-or-die war chest by mortgaging everything it could back in 2006, Ford rode out the economic crisis without government assistance -- and proceeded to return to solid profitability with a slew of impressive new products.

The cars and trucks in Ford's current line are among the best ever produced by an American automaker, with many comparing favorably to Toyotas (TM) and Hondas (HMC), long regarded as the world's quality leaders. But economic conditions around the world remain challenging, with consumers reluctant to spend and auto sales in the U.S. and Europe remaining well below pre-2008 levels.

So how is Ford coping with this difficult environment? Pretty well, though challenges remain.

Solid Profits at a Tough Moment

Ford reported a profit of $2.4 billion for the second quarter. That's down a bit from the second quarter of 2010, but it's higher than Wall Street expected.

Analysts expected profits to come under pressure from rising costs, and indeed they did. But Ford was able to make up some of the lost ground with price increases, thanks to the competitive strength of its products.

Ford increased its vehicle prices several times in the first half of 2011, using strong demand for hot products like the Fiesta and the Explorer to its advantage. These increases weren't just about squeezing buyers, though. A couple of different factors have driven Ford's costs up.

First, automakers -- not just Ford -- are paying more for raw materials. Rising industrial demand throughout the world has driven up the prices of many commodities, including things like the steel and rubber that all automakers need to buy in huge quantities. The global nature of commodity prices means that Ford won't be at a competitive disadvantage over the long term; everyone from Alfa Romeo to Volkswagen (OTC: VLKAY) will be paying more for their supplies.

But it does mean Ford will need to continue to raise prices to maintain its profit margins, and timing those increases is a tricky game. If the company raises prices more quickly than competitors, it'll find its products at a price disadvantage in the marketplace. But if it waits, its margins may be squeezed -- and sales may not rise by enough to make up the difference.

Product Matters -- for Lots of Reasons

This is where the strength of Ford's most popular products comes into play. In the old days, when they couldn't compete on quality, American automakers like Ford and General Motors (GM) were forced to discount heavily to keep sales going. But having some hit products makes a big difference: Buyers who are excited by the idea of a new Fiesta or Explorer or Mustang aren't going to be dissuaded by a price increase of a few hundred dollars.

Ford has quite a few strong products right now, thanks to actions it took back in 2006 which ensured that the company could continue to invest in product development during the economic crisis. But Ford needs to sustain those investments to make sure that the next generation of products is just as impressive, and those development costs are putting pressure on margins today as well.

These are substantial investments, in both time and money. A major new vehicle development program can take three years and cost a billion dollars, sometimes more. But investments like these are the cost of competing at the highest level in today's globalized auto business, and Ford CEO Alan Mulally is determined to keep the company at the top of the heap, in the U.S. and, increasingly, around the world.

That will be an expensive position to maintain. But done right, it'll continue to be a profitable one for Ford and its shareholders.

Motley Fool writer John Rosevear owns shares of Ford and General Motors. The Motley Fool owns shares of Ford Motor. Motley Fool newsletter services have recommended buying shares of General Motors and Ford Motor.


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43 Comments

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ieyun313

When you buy from the charity, I paid them anyway, but something that you think or say what a good price if the quality is fine magnetic silver zinger? What are you looking for when buying magnetic silver zinger?
Cheers:
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August 26 2011 at 2:21 AM Report abuse rate up rate down Reply
sk70ply340

We switched to Fords in 2007, they build great cars & trucks , and we've been very pleased with them. With them not taking any bail out money just made us like them more

July 27 2011 at 8:34 PM Report abuse +1 rate up rate down Reply
Hey Bitch ;)

FORD??? NO I think I will pass. Funny how Ford gets credited for not getting a loan from the Gov. when in 2005 they received a $22M "loan"' from the Bush admin. Yet they NEVER paid back a DIME. Yet when GM and Chrysler borrowed money AND repaid it YEARS ahead of time they got shafted.. WHY?? they REPAID their loan WITH interest. Yet ford swept the $22M that they borrowed from tax payers under the rug. Even NOW Ford is STILL mortgaged up to its eyeballs in loans from FOREIGN BANKS. If anything I would be PISSED at Chrysler. they are now a NON american company boasting in commercials about how american they are and how they are "imported from detroit". i think not.. Should say "Owned by Italy". I drive a chevy, ford or dodge but our delivery trucks are all GM trucks Sierra, Tahoe, Silverado and a Arcadia and these vehicles are exceptional. I think my next vehicle will be american and it will be a Traverse.

July 27 2011 at 8:08 PM Report abuse -2 rate up rate down Reply
1 reply to Hey Bitch ;)'s comment
fortknoxguy45371

Well hell, we're all mortgaged up to our eyeballs with money from foreign banks.

July 27 2011 at 9:27 PM Report abuse +1 rate up rate down Reply
smokinjoe36

Americans are sickening. They bought 5.8 Million new IMPORT cars last year to 5.2 Million American made autos.
And everyone wonders why our economy is in such terrible shape.

July 27 2011 at 6:51 PM Report abuse +2 rate up rate down Reply
1 reply to smokinjoe36's comment
mottum1486

You Get It.

July 27 2011 at 11:12 PM Report abuse rate up rate down Reply
ruthsgardens

Everyone knows about and blames unions.American workers were unionizing around the mid 1800's.That is right.The railroad.You people with your Jimmy Hoffa complex need to drop it.They were paying americans slave wages for 6 days a week,12 hours a day.The heavy hitters come along.The steel giants,oil,lumber,coal companies began to build.All for slave wages to.Thousands of workers were being killed by explosions and gases.One explosion in 1944 in a coke batterie killed 2,000 people instantly slinging body parts everywhere.The problem with the autogroups began with the signing of NAFTA..Tariffs were lowered and dropped between the trading of Canada,Mexico and America.It was good then.Our government lost a huge amount of incoming money though.And cutting taxes has made it worse.What happened was China was allowed in the WTO. As of 2005,china had built over 3,000 blast furnaces making high carbon iron making cheap,crap steel.Mexico stopped buying the grade A,low carbon steel from american steel mills.They are buying china's crap steel so they can make a huge profit.Our autogroups are standing with our steel mills the best they can.America has only 23 blast furnaces to make iron to convert to steel.China is flooding world markets illegally with theirs never buying steel from someone else.Ever buy a chinese wrench?Breaks when you crank down on a bolt. Mexico is making our auto parts.Our autogroups and steelworkers have marched on washington since 2005.Both parties said no to tariff increases.While the chinese are wearing masks,getting blown up making 4 bucks an hour.Now they are unionizing.

July 27 2011 at 6:21 PM Report abuse +2 rate up rate down Reply
alfredschrader

Ford would own the auto business if they had the Thunderdrive, but they don't. Why ? I didn't sell it to them.

July 27 2011 at 6:20 PM Report abuse -1 rate up rate down Reply
Greg

Congratulations to Ford! I have a Ford, best car I've ever owned, and it's now entering it's 12th year on the road! And, my next car will be a Ford!

July 27 2011 at 6:07 PM Report abuse +1 rate up rate down Reply
dp6977

All of you in here that bitch about unions have never ever worked with one. You haven't a clue to what you're talking about nor do you want to learn that if it wasn't for unions you pay no matter if your union or non-union. Your pay would be whatever the company felt like paying you. Under unions women get paid the SAME amount as men. You CAN NOT say that about any other place of business that's non-union. YOU KNOW THIS IS THE TRUTH !!! I earned my retirement and my medical plan.

July 27 2011 at 5:24 PM Report abuse +3 rate up rate down Reply
Daniel Zajdel

2004 Lincoln Town Car Limited has so far been for me the best, most cost-effective vehicle I have ever owned.
Sad when the magnificent 1997 Town Car was turned into a potato on wheels in 1998, but even more sad that
after the restyled that potatio around 2004, they now are fading them out of public consumption.
MKX, MKZ, MKT are fine for folks who grew up in cyber-space with bluetooth, firewalls, aps, pda's, and isp's;
but there are a whole lot of us in the market who thoroughly enjoy a large, luxurious, stately Town Car.
There is a tradition of American luxury at stake, and what is Ford's answer? -- "Let's mimic Eueopean cars" instead of, "Let's lead by setting "the" standard by fabricating a STATELY, luxurious motor car."


but there hand-held,

July 27 2011 at 5:07 PM Report abuse rate up rate down Reply
ajschrod

As long as all car-makers with unions can convince their workers that what non-union shops pay MUST be the basis for any future negotiations, all will go well for many years. EVERYONE knows that overpay, ridiculous work rules, "cadillac" health care, and outrageous pensions negotiated by the UAW almost wrecked car manufacturing in America, so future contracts MUST include either give-backs or two-tiered systems for future employees. It is the ONLY way our American-named cars will survive!

July 27 2011 at 4:47 PM Report abuse -1 rate up rate down Reply
1 reply to ajschrod's comment
dp6977

Wow you are so WRONG asschrod it's not even funny!!! Unions had NOTHING, ABSOLUTELY NOTHING TO DO WITH THE FALL OF THE CAR COMPANIES. You have to be a tbagger for you to say such a stupid thing TO SAY. You repubs are destroying this country and you don't seem to care. How PATHETIC !!!

July 27 2011 at 5:08 PM Report abuse -1 rate up rate down Reply