Built Ford Tough: Why This Resilient Automaker Is a Good Long-Term Buy
by Jeannette Di Louie, Investment U Research
Tuesday, January 19, 2010
In a year that saw two of America's biggest companies - and the heart and soul of Detroit's auto industry - tumble into bankruptcy, one firm stood out.
While General Motors and Chrysler unashamedly begged for the government's help before filing their Chapter 11s, Ford Motor Co. (NYSE: F) stood out, first by relying largely on its own resources (not American taxpayers') and also by remaining out of bankruptcy court.
And while critics can cite a number of failures and recalls to justify their negative opinions, Ford CEO Alan Mulally believes his company can succeed. At the Detroit Motor Show last week, he confidently reminded one concerned audience member that:
"World-class companies profitably grow. They go through cycles, but they profitably grow for the long term. We have turned the corner. We have increased market share. We have a product line that we continued to invest in during the worst of times. And now we're going to serve all those customers around the world. We are going to globalize our products, increase the quality and the productivity every year forever."
I'm not as convinced as Mr. Mulally about his company "turning the corner" just yet - not with continuing problems in North America and Europe.
Western World Obstacles
With both the American and European economies still hurting and high unemployment putting the brakes on consumer spending, Ford shouldn't expect great results.
Many Americans already bought new cars last year, taking advantage of the government's "cash for clunkers" program. This promised $4,500 for anybody who traded in their old cars for more fuel-efficient vehicles.
And while that certainly boosted auto sales, it was a temporary stimulant that resulted in a glut of new car buying, rather than naturally over time.
Europe faces a similar problem this year, as its economic stimulus projects are winding down, too. The Wall Street Journal summed it up last week when it reported that, "Auto makers are bracing for a brutal 2010 in Europe, as economic troubles and the end of government scrappage programs threaten to drag down sales."
Fortunately, Ford has a long term to answer those problems... which is why I expect the firm to enjoy some good fortune over the long-term...
Ford Focusing on Asian Expansion
Like many other companies, Ford is focusing more efforts on Asia in hopes of capitalizing on higher growth there.
And according to Financial Times, Ford has already invested $500 million into expanding its business in India, with the target of creating 250,000 engines and 200,000 cars.
The firm has a range of economical small and mid-sized cars it intends to push especially hard in China and India in the next few years. This marks a different direction for Ford, which has struggled to compete in Asia, in part because the vast majority of consumers buy their cars for $7,500 or less. But now, Mulally is stepping up the company's game to create the Figo, a smaller vehicle built off of the Festiva platform, which will sell for under $8,000.
Meanwhile, the company is already working on a new plant in China, which is scheduled to open in 2012.
Ford's Electric Shift
In all, Mulally promises as many as 10 brand new Ford models by 2012.
And having been criticized (along with others) for focusing too strongly on SUVs, Ford is shifting its strategy by offering consumers more fuel-efficient options.
The 2011 Ford Focus compact sedan and hatchback won votes for the Detroit Motor Show's best green car. And Mulally has already said the firm will hire 1,000 people to work specifically on electric cars.
But in order for this initiative to truly take off and be profitable, the next step is to offer better resources - like plug-in stations in cities and parking lots. And that's not something that Ford can do all by itself.
That said, Ford made it through the last century on innovation and understanding consumer trends. And it's well-placed to do so again, which makes the stock a solid long-term buy right now.
Jeannette Di Louie