Ford could add $13 billion to earnings through an accounting change reflecting its improved performance.
Ford Motor Co. could be in for a whopping $13 billion profit, this year, simply from an accounting change that reflects the increased optimism about the Detroit maker’s financial health.
That move would dwarf the $6.6 billion Ford earned during 2010, even before the maker actually posted the results of its automotive and financial services operations.
At the end of 2010, Ford revealed it had reserved $15.7 billion in what is known as a valuation allowance, which is held against deferred tax assets. That is one of the largest figures among any U.S. corporations and, notably, the company must remove the item from its books, according to tax laws, once it is in a period of sustained recovery.
With Ford expected to post another significant profit for 2011, “We would remove our valuation allowance,” spokesman John Stoll said, “if that continues.”
The maker is expected to take the step sometime this year and would likely report the change as a special, one-time action in order to minimize the tax impact.
“This is a very positive statement from Ford,” Robert Willens, president of Robert Willens LLC, a corporate tax specialist, told the Bloomberg news service. “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 has steadily shifted back into the black over the last two years, during which it posted combined earnings of $13 billion.
By comparison, the maker reported $31.4 billion in operating losses between 2005 and 2009 – though it was the only one of Detroit’s Big Three automakers to avoid filing for Chapter 11 bankruptcy in 2008.
That should be enough, according to tax experts, for Ford to avoid having to pay income taxes well into the coming decade. Without that carry-forward losses, the maker’s tax rate would be pushing up towards the U.S. limit of 35%.