Ford's New Lease on Life

Ford Motor Chief Executive Alan Mulally loves to wax lyrical about the car company's slate of new trucks and cars. But he can thank sales of used vehicles for playing a big part in Ford's surprise third-quarter profit.

Out of pretax profit of $1.1 billion, excluding special items, $661 million came from financial services. Many analysts expected a profit of perhaps $100 million to $200 million, or even a loss, from Ford Motor Credit.

The big swing factor was a sharp increase in the value of used vehicles sold at auction. The Manheim Used Vehicle Value Index has risen for nine consecutive months since December 2008's low point, hitting an all-time peak in September. Higher used-car prices reduce losses on vehicles that come back to Ford after their leases expire, which it then sells. Pricing of used trucks and sport utility vehicles has risen particularly strongly.

Ford monster truck crushing clunkers at the Sawgrass Ford dealership in Sunrise, Fla.

Is it sustainable? Manheim, at least, suspects used-vehicle prices are reaching a plateau, with prices weakening noticeably in the last week of September. The dislocation in Detroit this year and efforts by the likes of Ford to sharply reduce bloated inventories have helped curb supply. That discipline will need to be maintained.

On the new-vehicle front, it remains to be seen how well sales hold up as government "clunker" programs end. Ford does boast one of the strongest new-product pipelines in the industry. But while Ford raised its guidance for 2011, it will be next quarter before it issues an updated outlook for 2010. And its decision to raise another $3 billion from investors speaks to the need to fix its balance sheet. Like any other auto maker, it needs a consumer-led recovery that isn't dependent on government steroids to really come into its own.