P&A Providers & Administrators
MenuMENU
SearchSEARCH

Ford Accounting Move May Add $13 Billion To Profit, Expert Says

March 4, 2011
3 min to read


Ford Motor Co. after earning $9.3 billion in the last two years, may make an accounting change this year to reflect confidence in its recovery, a move one tax expert said could boost its 2011 profit as much as $13 billion.


Ford in the second half may eliminate from its balance sheet a valuation allowance held against deferred tax assets, it said in a federal filing this week. The reserve was created in 2006 as Ford began four years of operating losses. Eliminating the allowance may add $10 billion to $13 billion to Ford’s net income this year, said Robert Willens, president of Robert Willens LLC of New York, a corporate tax specialist, reported Bloomberg.

Ad Loading...


“This is a very positive statement from Ford,” Willens said. “If you take the radical step of eliminating your valuation allowance, then you’ve developed a high degree of confidence in your future profit-making ability.”


Ford, the only major U.S. automaker to avoid bankruptcy in 2009, revealed in its Feb. 28 10-K filing that its valuation allowance at the end of 2010 was $15.7 billion, one of the five largest among U.S. public companies, Willens said. Once a company believes it has entered a sustained period of profitability, it must remove the item from its books, he said.


“We have had a sustained period of profitability in our operations and if that continues, we would remove our valuation allowance,” John Stoll, a company spokesman, said yesterday. “We’ve said we plan to deliver continued improvement this year in our pretax operating profit.”


When Ford removes the allowance from its balance sheet, it will record the accounting move as a “special item for the quarter” to avoid “a large negative effective tax rate,” it said in its filing. Without the allowance, The Dearborn, Michigan-based automaker said it would “experience more normal effective tax rates, approaching the U.S. statutory rate of 35 percent.”


Ford, which hasn’t paid U.S. taxes since 2005, may not pay federal taxes until the end of the decade because it still would have tax-loss benefits on its books from $31.4 billion in operating losses sustained from 2005 to 2009, said Brian Johnson, a Chicago-based analyst with Barclays Capital Management.

Ad Loading...


“Releasing the valuation allowance is purely an accounting move,” Johnson said in a March 2 interview. “It has absolutely no bearing on cash taxes and the U.S. government won’t collect from Ford for quite some time.”


The potential change in the reported tax rate has weighed on Ford’s shares this year, Johnson said. Investors apparently don’t understand Ford won’t pay additional taxes, he said.


Wall Street is focused on how Ford will need to reflect a 35 percent tax rate,” Johnson said. “But what investors should look at is that Ford still won’t be paying cash taxes.”


Ford rose 10 cents to $14.76 in composite trading on the New York Stock Exchange yesterday. The shares have fallen 12 percent so far this year.


In 1998, Ford recorded a $16 billion gain from spinning off Associates First Captial Corp., a consumer and commercial lender. The automaker had net income that year of $22.1 billion on operating income of $8.98 billion.

Ad Loading...


Ford earned $6.56 billion last year, the most since 1999, when new models such as the Fiesta subcompact and redesigned Taurus sedan helped the automaker’s U.S. sales rise 17 percent, outpacing the industrywide gain of 11 percent. Ford’s U.S. sales are up 9.7 percent so far this year, according to Bloomberg, trailing the industry’s overall increase of 22.6 percent.


“People won’t pay attention to the size of the special item,” Willens said of the boost to net income Ford may realize from removing the valuation allowance. “When you eliminate a reserve like this that you had on the books, you’re making a strong and bold statement about the outlook for the company.”

More Industry

Photo of gray SUV plugged into public electric-vehicle charger in parking lot
Industryby Hannah MitchellJuly 21, 2026

World EV Adoption Set to Grow

A new report says the segment, despite recent setbacks in some regions, is poised for acceleration as many countries look to reduce pollution.

Read More →
Bar chart of truck and SUV segments' weekly value change
Industryby StaffJuly 21, 2026

Black Book: Weekly Market Update

Wholesale automotive auction business stayed steady last week as bidders encountered lower prices, analysts observed.

Read More →
laptop with blue car on screen on a shopping website, Clear Costs Convert
Industryby Lauren LawrenceJuly 21, 2026

Pricing Transparency Drives Purchase Consideration

An annual study by JD Power found that clear pricing matters to consumers on automaker websites, so much so that it increases their purchase consideration.

Read More →
Ad Loading...
Bar graphic of used-car segment weekly change
Industryby StaffJuly 14, 2026

Black Book: Weekly Market Update

Used-vehicle market depreciation was the prevailing story in the wholesale market last week.

Read More →
Light-blue Fiat car parked on a sunny Chicago street
Industryby Hannah MitchellJuly 14, 2026

Smaller Is Looking Better

A growing number of Americans in the market for a new vehicle are opting for more affordable options, not waiting for market stability to bite the bullet.

Read More →
man sitting at desk using calculator with charts in front of him, to-go coffee cup on desk, rising and falling data chart in front
Industryby Lauren LawrenceJuly 14, 2026

U.S. EV Market Slowly Stabilizes

U.S. electric-vehicle interest is slowly stabilizing since a major dip in sales after last year's end of the federal EV tax credit, and hybrids remain the leading electrified power train.

Read More →
Ad Loading...
blue background, map of the world with connecting lights and an electric vehicle emblem in the middle
Industryby Lauren LawrenceJuly 8, 2026

Global EV Market Entering New Phase

Automakers are making investments to lower battery costs and optimize production to meet changing consumer needs.

Read More →
Bar chart showing week-over-week wholesale automotive price change
Industryby StaffJuly 7, 2026

Black Book Weekly Market Update

The holiday weekend, not surprisingly, put a drag on wholesale automotive activity last week, analysts observed.

Read More →
Photo of Honda CR-V SUV on two-lane road next to roadside trees
Industryby Hannah MitchellJuly 1, 2026

Auto Affordability in Context

Cox Automotive points out the complex circumstances that have led to eye-popping vehicle prices.

Read More →
Ad Loading...
Line chart of used-vehicle days to turn over past week
Industryby StaffJune 30, 2026

Black Book: Weekly Market Update

Automotive auction inventory increased last week, giving choosy bidders even more leeway.

Read More →