Ford's Turnaround Continues to Impress

In just a few years, Detroit icon Ford (NYSE: F  ) has gone from being a broken has-been on bankruptcy's doorstep to one of the world's most focused and admired companies. Many elements have contributed to Ford's turnaround, but one of the most important is also one of the simplest: recasting Ford's far-flung holdings as one single company.

In a recent presentation, a senior Ford executive gave some details on the state of the company's "One Ford" turnaround efforts. Several points were of interest to investors.

A look at a work in progress
Jim Farley, Ford's chief marketing officer -- or, officially, "group vice president of global marketing sales and service" -- reviewed the key components of Ford's plan in a presentation to analysts this week. Some highlights:

Profitability on lower volumes. Ford has reduced structural costs by more than $10 billion and will have reduced its production capacity by 40% by the end of next year. Ford now has fewer factories, but each is producing more vehicles -- a development that has allowed it to be profitable at near-record-low sales levels.

That sea change is likely to make for impressive margins as sales rates continue to recover. And that hasn't escaped Wall Street's notice. A Barclays analyst upgraded Ford on Thursday, citing "the fundamental increase in Ford's earnings power even in a slower growth environment."

Migration to global platforms. In industry-speak, a platform is a set of common dimensions that apply to vehicles and manufacturing. Cars built on the same platform may be quite different from one another, but they typically share parts under the skin, cost less to develop, and can be built on the same assembly line. One of Ford's goals has been to reduce the number of platforms in use globally, to save on engineering and development costs -- and to make the best use of each engineering group's strengths, allowing Ford to sell its best products throughout the world.

For instance: Ford's Fusion is a popular midsize sedan available in the United States, Canada, and much of Latin America. It shares a platform with the Mazda6 -- Ford controlled Mazda for several years -- and with similar Lincoln and Mercury models. Ford's Mondeo, meanwhile, is a popular midsize sedan available in Europe, Australia, and several other parts of the world. It's roughly the same size as the Fusion, and it even looks somewhat similar, but it's a completely different car, developed in conjunction with another former Ford property, Volvo.

In other words, Ford spent millions developing two separate midsize-sedan platforms, just as it developed two separate Fiestas (one for Europe, one for Latin America), two separate versions of the Focus (one for North America, one for Europe), and so on in the past.

CEO Alan Mulally's goal, put simply, is to knock that off once and for all. The much-acclaimed new-to-the-U.S. Fiesta is not really an all-new car; it's a variation of the Fiesta that Ford started building in Germany in 2008 -- the same car, and the same "guts," with minor styling and trim changes to suit local needs. Likewise, the upcoming all-new Focus is the same as the new Focus that will launch in Europe next year; even the upcoming Focus Electric, developed in conjunction with Magna International (NYSE: MGA  ) , will be a "global" model sold in North America, Europe, and Asia.

Ford has tried this strategy before with the original Mondeo, which was also sold in the United States as the Ford Contour. But it's never done so with this level of sophistication, and never with this kind of total corporate commitment. And the approach is already producing impressive results.

The greening of Ford. Farley's presentation noted that Ford's fleet-average fuel economy has improved by 19.2% since 2004, a rate that outpaces all of its key North American competitors. On one hand, that's not saying much. Honda's (NYSE: HMC  ) fuel economy was already quite good in 2004, when Old Ford was still pigging out on SUV sales. But on the other hand, fuel efficiency is a huge deal for Ford right now. Farley said that Ford intends to make its "EcoBoost" technology -- a series of advanced, fuel-efficient turbocharged engines -- available in every product.

Green technology is big business -- just ask Toyota (NYSE: TM  ) , where Farley worked before joining Ford in 2007 -- and Ford is already showing signs that it will be a leader as the focus on automotive fuel efficiency continues to sharpen in the coming years.

The sincerest form of flattery
Ford's management is a long way from declaring victory. However, all signs indicate that the company's immense debt load is well under control, and it's been clear for a while that the turnaround is already producing impressive results. Ford's products are putting in a strong showing. Market share and "residual values," the value of a recent used car, are both solidly on the upswing, as Farley noted, and Ford is more profitable than it has been in years, despite the weak sales environment.

But perhaps the most sincere compliment for "One Ford" has come from across town. New General Motors CEO Dan Akerson outlined his own plans in a press conference on Thursday, and they're (unsurprisingly) Ford-like: to implement a clear, unified global strategy that allows GM to contain costs, be nimble, and to go on the offensive against competitors.

Sound familiar?

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Fool contributor John Rosevear owns shares of Ford, which is a Motley Fool Stock Advisor recommendation. You can try Stock Advisor or any of our Foolish newsletter services free for 30 days, with no obligation. The Motley Fool has a disclosure policy.


Read/Post Comments (9) | Recommend This Article (14)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On September 18, 2010, at 10:40 PM, Glycomix wrote:

    Ford is now building great cars.

    Road and Track gave Ford's Taurus high marks. Consumer's Guide gave the Ford Fusion Hybrid the same rating as the Toyota Camry hybrid. Consumer's Guide said that the Ford has a higher reliability, and 100 miles more range, an automatic voice activated blue toothcellphone system, a free navigation system and two more years of warranty (5 yrs vs 3 yrs) and 8 years 100,000 mile warranty for the hybrid components.http://www.youtube.com/watch?v=Jv-fby9OU-s&feature=relat...

    . The better warranty may matter since the 2010 Toyota Camry was recently recalled. http://www.lemonauto.com/complaints/toyota/toyota_camry.htm.

    Not only does Ford have the best models but also the best earnings per share (P/E).

    In the first six months of 2010, Ford's per share earnings have already surpassed 2009's 86 cents earnings per share. Ford had 50 cents per share earnings in the first quarter of 2010 and a 61 cents per share earnings in the second quarter. If Ford continues its earning rate for the next 6 months, its stock price of $12.49 produces an impressive current 5.63.Price/ Earnings ratio.

    Ford is a bargain even at the current Price/ Earnings ratio of 8.38 for the trailing 12 month. In addition, its charts suggest that it is likely to hit $14 by the beginning of December. http://www.finviz.com/quote.ashx?t=f&ty=c&ta=1&p...

    If Ford's share price is $14 by Dec. 1, that would be a 12% return on investment for 10 weeks, making a 62% annualized return on investment.

  • Report this Comment On September 18, 2010, at 11:24 PM, NOTvuffett wrote:

    Ford's management knew that there were tough times ahead and got the credit to weather the storm. A+ to the management team on this one.

    GM knew it was coming but didn't give a crap.

    Chrysler was mostly clueless. It was privately held but for investors was relevant because of the bond-holders.

    How did it all shake out? Your Grandma that had 1000 shares of GM now has nothing. Your Uncle that bought those 'good, safe' bonds in Chysler has nothing or next to nothing.

    Get ready to drive a chinese car.

  • Report this Comment On September 19, 2010, at 6:12 PM, safefool1 wrote:

    If Ford is so good, how come it is mired in debts? It's all Wall Street's pump & dump strategy. Stock is a product, just like a car or a computer. To be sold by professional to naive investor at high who will be trapped by the high price for the rest of life.

    When investor buys, the Wall Street prof says, Ha ha ha, another sucker.

  • Report this Comment On September 20, 2010, at 11:08 AM, ConfidentNvestor wrote:

    Sounds like safefool1 is running scared! Had more bad investments than good? If you do your homework prior to investing, Wall Streets pump & dump strategy (so cooly stated) won't get in your way. Ford is a great buy even now. This company will make more money this year than in any of the past 25 years. They are doing this with an 11.5m SAAR. Come on, smell the coffee. You have to know this is a slam dunk! If you still aren't convinced, do your homework. Once Ford is out of 'junk-status' rating (very soon), you can automatically add another $1B to their anual bottom line without seelling one additional car (savings come from interest once they restructure their current debt at normal interest rates). Also, Ford Credit will be able to loan at normal interest rates. This will bring their anual profit to $2.5B, which goes right onto Ford Motor's bottom line, again, without even selling one additional vehicle. Rest assured, Ford will be a $20+ stock by mid 2011 and YOU can be a part of it. I have many more statistics to share, but I will save them for your rebutle!

  • Report this Comment On September 20, 2010, at 11:35 AM, pondee619 wrote:

    John:

    Do you prefer going long the common (F) or the preferred (F-S)? what are your reasons therefore?

  • Report this Comment On September 20, 2010, at 2:03 PM, ConfidentNvestor wrote:

    I do not have enough knowledge in the Ford preferred area to give recomendation. However, I know a lot about the internal workings within Ford and Ford Credit. I understand their vision and totally agree with their short and long term plans. Mgt. team is expceptional and product line is unmatched. Ford is the darling of the Auto Industry and will continue to be. The stock (common) is undervalued, as is the company's earning potential. This is all based on TODAY's environment/economy! Just think what will happen if this economy turns. Ford is poised to have the largest earnings years in its History. I would love it if someone could post somethings to prove otherwise. I'm seriously interested to hear apposing views (only fact based views please!). I want to know as much about this company as possible as I have everything riding on it. I got into this stock at $1.42 and I have been riding it ever since. I am 100% invested in this single stock! I believe investing has changed and it is vital to take advantage of opportunities when you can. This stock is one of those plays. I won't stay 100% invested for long, as that would be crazy. But for now (12 months), I'm keeping my money invested in Ford.

  • Report this Comment On September 23, 2010, at 11:23 AM, pondee619 wrote:

    I guess it was foolish expecting an answer from a fool writer.

  • Report this Comment On September 23, 2010, at 2:34 PM, TMFMarlowe wrote:

    Didn't see it 'til just now, pondee. Short answer is that at the moment I bought in, back in 3/09, the preferreds (Cap Trust II, specifically, F-PS) were a bit undervalued relative to the common, and that plus the promise of having the suspended dividend paid in full eventually made the choice straightforward -- I bought F-PS.

    Now? Are you planning to buy a new Ford and wanting to use shareholder status to buy your car at a discount? If so, buy the common -- but if not, I'd still take a close look at the preferreds. That dividend -- now reinstated -- is an attractive plus.

    John Rosevear

  • Report this Comment On September 23, 2010, at 3:15 PM, pondee619 wrote:

    thank you

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