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Ford rides its fuel efficiency to a profit peak Records best 1st quarter in 13 years as new models offset gas price surge

Ford Motor Co. has posted its best first-quarter profit in 13 years, thanks to an improving economy and a lineup of fuel-efficient vehicles that reached showrooms as gasoline prices surged.

New arrivals such as the improved Ford Explorer -- which gets 20 percent better fuel economy than the old version -- and the 40-mile-per-gallon Fiesta subcompact are selling well in the United States. Company profits are growing around the world. And Ford is charging more for its cars, helping offset the higher costs of steel and other materials.

The outlook for the rest of the year is also positive. Ford can likely keep its prices high because of Japanese earthquake-related shortages at rivals such as Toyota. Consumer confidence is growing, so buyers are more willing to invest in a new car. Ford predicts that U.S. sales will rebound from a 30-year low of 10.4 million in 2009 to about 13 million this year.

Tuesday, Ford said net income rose by 22 percent, to $2.6 billion, its best first-quarter performance since 1998. It was the company's eighth straight quarterly profit in its long climb back from near-bankruptcy five years ago.

Ford's revenues rose by 18 percent, to $33.1 billion. The company saw especially strong growth in Asia, where revenues jumped by 31 percent, to $2.1 billion. In India, sales more than doubled, thanks to the popularity of the $8,000 Figo subcompact.

"Our team delivered a great quarter, with solid growth and improvements in all regions," said Ford President and CEO Alan R. Mulally.

With a strong lineup of relatively new small and midsize cars, Ford is in a good position as rising gas prices push drivers into smaller vehicles. The average price of a gallon of gas in the United States is now $3.87, up by $1.03 from a year ago. Ford's newest small car, the redesigned Focus, can get up to 40 mpg on the highway.

Ford's bigger vehicles are also more efficient. Ford's F-Series pickup, the company's best-selling vehicle, now has a more efficient V-6 engine; about 37 percent of buyers chose that engine in March. Customers switching from a truck-based 2010 Explorer to the less-expensive, car-based 2011 Explorer can save about $500 on gas each year, according to government fuel-economy calculations. The revamped sport utility vehicle is lighter and gets about 25 mpg on the highway.

At one time, a shift to smaller vehicles would have signaled trouble for Ford, since it makes lower profits on them. But the profit gap between big and small is narrowing as buyers put more expensive options in compacts. One of the most popular options people are adding to the $16,695 Fiesta SEL is heated leather seats for $795. Such luxurious trimming was unheard of in small cars a decade ago, but it's the new reality as downsizing baby boomers demand more amenities, and young buyers shell out money for perks like entertainment systems.

"This is a tremendous change in the automobile industry," Mulally said.

The average price of a Ford vehicle increased by $2,515, to $33,173, in the first quarter, according to auto pricing site That was $3,000 more than the average price for the industry.

Ford raised prices to offset the rising cost of steel and other commodities. But Ford also got better prices for its vehicles because it offered fewer discounts. The decision was risky, because it cost Ford some market share in the United States, Europe and South America. But Mulally said Ford needs to remain disciplined about its pricing, and he expects the company to gain back its share before the end of the year, in part because of shortages at Japanese automakers due to the March 11 earthquake.

"Clearly with this much disruption, the demand's going to outpace supply," Mulally said.

Ford still has trouble spots. Chief Financial Officer Lewis Booth said Ford's commodity costs are expected to increase by $2 billion by year's end. Sales of the Lincoln luxury brand are falling, and a planned revamp of the brand is still two years away. Lincoln's U.S. sales slipped by 11 percent in the first quarter. By comparison, sales at rival Cadillac rose by 38 percent.

Ford also has substantial debt, the result of its 2006 decision to take out a $23.5 billion restructuring loan. But it's making progress repaying that debt. Ford ended the quarter with $16.6 billion in debt, down by $2.5 billion from the beginning of the year.

The earthquake in Japan has had little impact on Ford so far. Booth said the company has lost production of 12,000 to 14,000 vehicles at its Asian operations but doesn't expect the losses to affect the company's bottom line. Three assembly plants in Ford's Asia-Pacific region are closed this week because of parts shortages, Booth said.

"We're in world-class scrambling mode at the moment," Booth said, noting that some Japanese parts are being shipped by air to other regions to keep production on track.

The company earned 61 cents per share, compared with 50 cents a share in the same quarter a year ago. Analysts polled by FactSet had been expecting earnings of 50 cents a share.

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