A Few Good Reasons to Invest in This Automaker for Long-Term Gains

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Dec 23, 2014
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Ford’s (F, Financial) recently reported results that turned out to be quite solid, but all was not well with The Blue Oval. Let us take a look what the company has in store for investors and how does it plan to address the European conundrum.

The European market

Europe’s impact on the company’s profit is entirely because of macroeconomic factors that are not controllable. So I believe it’s better to focus on what Ford is doing to overhaul its operations in Europe. It has closed down three factories in Europe to lower cost and make each unit it sells in that region profitable. The company can further add new vehicles to its current offerings in Europe at a lower cost, which should eventually help its bottom line irrespective of the economic condition of the continent.

The silver lining

Ford’s condition in Europe should be better as management’s turnaround strategies should deliver, but it will take time.

Now let us focus on the company’s growth and expansion in other region. It recently started producing Kuga and Transit in Russia through its joint venture with Ford Sollers. The response for both the cars has been very good and should further help the company improve its revenue from the region.

Ford has ambitious expansion plans in Asia, especially China. At the moment, the most populated country in the world is not very profitable, not even to the market leader General Motors (GM). Investors might feel Ford is too late in entering the Chinese market but it is not so.

Moreover, Ford has a strong brand image in China and is seen as a luxury brand. The company will be introducing its iconic Lincoln brand in China which should go well with the lifestyle of the affluent Chinese population. Lincoln’s high price tag should boost company’s margins. Further, the company’s revenue should improve as it has the right set of products to match the rising demand of SUV’s in China.

The company’s performance in North America has driven it to safe roads. Ford’s revenue in the U.S. might have been slightly up, but a hike in sales of high-margin pickup trucks has boosted its profit. The company’s North American segment is currently the driver that is financing its growth prospects in Asia and making good its losses in Europe.

A look at the competitors

Ford faces competition from the likes of Toyota (TM) and GM. Currently, Toyota is facing some troubles with their acceleration issues, failing brakes and numerous recalls over the last few years. The company has also been losing market share in China, but all this did not stop the company from selling 9.75 million vehicles last year and becoming the largest automaker across the globe.

Moreover, Toyota’s top position in the auto industry places it in a better position to bargain with the Bank of Japan for obtaining monitor in order to keep its expansion drive running.

General Motors, though, have lost the crown of being the largest global automaker but there is a lot to like about it. It is the market leader in China, and has three models in the list of top five cars. Also, the company is planning a lot of new cars to boost its business. Redesigns of the Chevy Silverado, Chevy Impala, GMC Sierra, and a new Chevy Corvette will be in the market soon. The Buick Encore, the Suburban, Tahoe, Yukon, and Escalade are expected to hit roads by the first half of 2014.

Conclusion

Ford is going strong in the American market and gaining share in China. Although the company is currently not being able to generate any operating profit in China, as it is investing heavily to catch up with its rival, the current investments should reap benefits in two to three years time.

Leaving aside Europe, due to gloomy economic conditions,, even if the company is able to break-even by 2015-2016 it will add another $1.5 billion to $2 billion to its current pre-tax profits. With the company’s turnaround strategies the target seems achievable.