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Ford Motors Is Set For a Bright Future

August 28, 2014 | About:
Suravi Thacker

Suravi Thacker

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Ford Motors (F) was the only company which did not need a bailout during the last recession. On the other hand, auto giants such as General Motors (GM) were impacted heavily and needed a bailout for their revival. Both the retailers, however, are able to attract most of customer attention through their range of pickup trucks and large SUV lineup.

In fact, Ford reported its second quarter results recently, which gives a number of reasons to hang on to this company. Although the numbers were mixed, its share price shot up as investors showed confidence.

By the numbers

Revenue dropped 1.3% to $37.4 billion, over the prior year’s quarter. This was mainly due to weakness in the wholesale business. Volumes in the wholesale business dropped 17,000 units, to $1.7 million over last year. Also, sales to dealers declined 1%. In fact, market share fell in all the markets, except Asia-Pacific.

Another primary reason for lower sales is reduction in products since the automaker is planning to launch a new range of F-series lineup. The new F-series will have aluminium bodies. Hence, many plants have been shut in order to revamp it to make it compatible with the new product manufacturing.

However, if we look at the bottom line, the story becomes different. Despite lower revenue, the retailer managed to register an earnings increase. Its earnings stood at $0.40 per share, much higher than the analysts’ expectations of $0.36 per share. This shows Ford’s efficiency to meet demand and its ability to manage its cost structure. On the contrary, General Motors reported a sharp decline in its second quarter earnings, which was mainly due to higher costs of recalls because of defective engine. Even if we exclude the effects of recalls, the retailer failed to meet the consensus.

By the segments

One of the bright spots during the quarter was sales in the Chinese region. Volume in China rose a whopping 26%, driven by expansionary efforts by Ford. China is one of the largest automobile markets, much eyed by all the retailers, including General Motors and Ford. In fact, Ford has been spreading its wings in the region by having new plants set up there. After the completion of one new plant, Ford plans to add another 5 in China and India. Also, it will be launching its luxury brand, Lincoln, in China in the fall.

In fact, new products have always been a reason for merriment for Ford. With the introduction of the new Cadillac CTS and Chevrolet Corvette Stingray, General Motors witnessed higher footfall at its showroom. Similarly, Ford’s new Mustang and the new F-150 too should bring windfall gains.

Even Europe is showing signs of improvement with sales increasing by 6.6% in the first half of 2014. This is higher than the industry growth of 6.3%. Further, it is the first time that the company witnessed profits in the region from heavy losses previously.

Ending thoughts

Ford’s results suffered slightly primarily because of the planned revamp of its product portfolio. However, its efforts to manage costs and attain efficiency were commendable. Further, with the new launches planned for the second half of 2014, the automaker looks even more attractive. Higher demand in Asia Pacific, especially China should help Ford boost its results. Therefore, investors should look forward to this company’s prospects.


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