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Ford Is a Strong Buy Despite Flat Sales
Posted by: Muhammad Bazil (IP Logged)
Date: October 11, 2012 10:04AM
While Ford (F)'s sales don’t spur a lot of excitement, I am still confident that it is a strong buy. My convictions are strengthened by the fact that Ford is well positioned when compared to its core competitors. Similarly, its disappointing top line is not an isolated event. The whole market is reeling from the effects of the continuing global economic slowdown. As such, I have chosen to overlook the disappointing sales aspect in favor of other more convincing angles.
Chance to Reclaim Market from Japanese Automakers
Over the past 12 months, Japanese automakers have managed to make significant inroads into the market. Japanese heavyweight Toyota (TM) has actually gained 2.9 percent. Ford on the other hand has lost 1.9 percent of its market. General Motors has also followed suit, losing 2.0 percent.
The table gives a more definitive picture:
The table clearly shows that American automakers are losing their market to Japanese, alongside other Asian, automakers.
Despite this, there are two factors that limit the success of Japanese, alongside other Asian, automakers at the moment – the notable slowdown in India and the growing anti-Japanese sentiment in China.
Car sales in India have dipped considerably. SIAM has actually cut its sales growth forecast for India to as low as 9 percent. This represents a big dent in sales especially after considering that car sales growth came in at 30 percent in March 2011.
The Chinese market on the other hand is also rickety. Consumers are currently transitioning from Japanese automobiles in favor of other options. This comes after heated lands dispute between the two states. In fact, the situation has escalated to the extent of arson and vandalism of Japanese cars. This deplorable state has prompted most Japanese automakers to indefinitely halt production in China.
These two aspects collectively give American automakers, specifically Ford, a huge edge. In India for instance, Ford will have the opportunity (unlike Asian automakers) to fall back on the American market to maintain sustainability as it waits for the potent Indian market to grow again. India presents a lot of potential. Only 1.3 percent of its bulging 1.2 billion citizens drive. This implies that there is a lot of opportunity in the country. Ford actually expects India to be one of its biggest markets by 2020.
Chinese consumers on the other hand have begun patronizing American automakers, giving players like Ford and General Motors (GM) a huge edge over Toyota. The benefits of the leeway provided by consumers’ choices are evident in General Motors’ Chinese sales. The American bigwig managed to sell 1.84 million cars in China, eclipsing Nissan’s 485,000.
Looking at these two major factors in Asia, I am inclined to believe that American automakers like Ford are better placed when compared to global rivals like Toyota.
Continued Aggressiveness in the Home Market
Following Ford’s widely documented turnaround some time back, the automaker has since stuck to the habit of always being aggressive. While German automaker Volkswagen currently takes the lead in U.S. sales, Ford still has its cost cutting programs in play. As such, Ford’s flat U.S sales could still arrive at a promising bottom line.
Similarly, Ford is one of the big beneficiaries of the automotive loan program that was set in motion in 2008 by the administration of former U.S. president George W Bush. The program, which has also helped Tesla (TSLA), was designed to spur a market for fuel-efficient automobiles. My only concern is that Tesla may benefit from the program in the long run.
Tesla’s operations are specifically streamlined towards green methods. It foresees a huge market for electric cars in future years and is currently paying its loans on time, suggesting that things are going according to plan. Although it has not yet passed beyond the break-even point, CEO Elon Musk believes that the electric car maker will be "cash flow positive" toward the November fall.
Ford’s edge comes from the fact that actual profits in Tesla will probably start streaming in toward 2014. If this is so, Ford still has time to overhaul its American operations and push production toward fuel efficiency and sustainability.
In conclusion, I believe that the way in which the global automobile market is developing favors Ford. Despite the crashing sales in Europe, I still believe that it is a good buy.
Stocks Discussed: F, TM, GM,