Ford returns to profit for first time since 2005

'Cash for clunkers' scheme and bankruptcies of rivals help revival at US car giant

Ford, the only major US car company to avoid bankruptcy this year, promised something unheard of from the motor city of Detroit for several years: a return to "solid profitability".

The company, which has been picking up market share from its bankrupt rivals Chrysler and General Motors, said that its North American operations were in the black in the last three months for the first time since early 2005.

The turnabout came after the revived demand for its vehicles enabled it to avoid some of the deep discounting it previously used to get people into showrooms. The quarterly profit coincided with the US government's "cash for clunkers" scheme which provided a taxpayer subsidy for drivers who traded in their old vehicle for more a fuel efficient new car.

"Ford is making tremendous progress despite the prolonged slump in the global economy," said the chief executive, Alan Mulally. "While we still face a challenging road ahead, our transformation plan is working and our underlying business continues to grow stronger."

He refused to give a short-term profit forecast, declining to update guidance for next year, but promised that the company would manage "solid profitability" in 2011, instead of the "break-even or better" that has been Mr Mulally's mantra for the past several months.

The company has seen its share of the US market edge up this year, to almost 16 per cent in the first nine months, from less than 15 per cent in the same period of 2008. All the major car makers report October sales today, which analysts will examine for signs that the market is reaching a stable level of demand. The cash-for-clunkers boost over the summer gave way to a slump in September.

For the three months to the end of September, Ford recorded a net profit of $997m (£609m), up from a loss of $161m a year earlier. Having burned through $4.7bn in cash in the first half of 2009, it reported $1.3bn of positive cash flow in the third quarter – its first positive cash flow since the second quarter of 2007. It said it expects positive cash flow in the fourth quarter as well.

It also reported a 180 per cent increase in profits from its European operations, despite selling fewer cars.

The signs of health, though, come at a tricky moment, since the company is still trying to negotiate more concessions from its workers. Ford has received $500m in annual labour cost savings by renegotiating contracts with the United Autoworkers in February, but said it needed more cuts to align long-term costs with those of GM and Chrysler.

Ford's union workers in Canada ratified a cost-cutting deal over the weekend to preserve most of the Ford jobs in Canada, but US workers reportedly rejected the latest plan.