Ford Motor (F, Financial) is quite bullish on the European economy and believes that time has come to recovery all losses borne in the past years. The economy is showing signs of improvement and is expected to grow at the rate of 1.2% this year. The American car giant is very optimistic about the upturn, particularly the growth potential in the Russian market.
The Rationale
The European debt crises that plagued the economy shook consumer confidence. As a result majority of them held back their demand and kept a strict control on their overall spending. This affected the auto industry to quite an extent as there was a steep fall in the purchase of cars. Automakers including Ford, domestic rival General Motors (GM, Financial), and German-based foe Volkswagen (VLKAY, Financial) lost lot of money in the continent. Ford has not generated profit in the continent since 2010.
But now as things have begin to change for the better, people who withheld their consumption for so long are slowly resuming to their previous buying level. Ford knows that this pent-up demand could bring big business to the automakers. Europe has been one of the biggest auto markets and American automakers have a huge presence along with proper set-ups here. These plants were being underutilized due to weakness in demand and a number of units were shutdown as well. But Ford believe gone are such days.
Driving on Russian Road
Ford has huge hopes tied to the Russian market. And since the automaker has a joint venture in the market, the company stands to gain even further. Ford CEO Alan Mulally says, “long- term we are very ambitious about Russia.”
Auto sales in the continent is improving, but is yet to stabilize. Although year to date car sales have gone up 7% compared with a year earlier, it has been fluctuating from month to month. For instance, sales for the month of March rose 11%, but April gains came down to 5%. But welcome news for Ford investors is that between all this the carmaker has managed to increase its holding in the European Union as its market share increased from 7.3% in the last year to 7.6% in the first four month of the current year.
Ford’s market share rose because the company cut prices of its cars more than its competitors. Credit for such improvement also goes to Ford’s persistent effort of creating value and widening its portfolio of cars in Europe. It is in the process launching as many as 25 revamped models in the continent by 2017, and that will benefit it in a great way.
Focus on Luxury Segment
As the economy gets better Ford intends to get a share of the luxury segment as well. The company plans to offer high-end models in the country and compete with other premium offering of from BMW, Volkswagen’s luxury brand Audi, and Mercedes. But it does not intend to introduce the Lincoln brand right now. It rather wants to steal a share of this market by offering premium and more advanced versions of its existing models.
The Detroit automaker is confident that it would be able to grab attention of the affluent class by upgrading the current mass marketed models. By providing leather upholstery, chrome accessories and moldings, with additional excellent customer service under the Vignale label.
If the company can capitalize on the opportunity and things work in favor, Ford would return to profitability very soon. Its luxury offerings will be offered at a premium price that will widen margins. Auto research firm IHS Automotive predicts that by 2020 Ford’s sales volume would increase to 1.65 million, an increase of 25% over current volume. Ford is scheduled to bring the Mustang sports model in 2015.
DepartingThoughts
With solid ambition to grow in the European continent, Ford is preparing itself to grab a bigger share of the market and more than just making up for the losses that it suffered in the recessionary period. With eyes on the Russian market and its endeavor to expand its reach in the premium zone, Ford looks good to go.
