Ford (NYSE: F ) recognizes that every major automaker has a premium brand, and its premium line, Lincoln, currently fails to compete. It has a steep hill to climb bringing its all but dead luxury brand back into relevancy. Last year, the Mustang outsold the entire Lincoln line itself, and the Escape more than doubled it. This week, J.D. Power and Associates released its vehicle dependency study, with Lexus claiming the No. 1 spot. There are a couple great things found in the study regarding Detroit, and specifically Ford's Lincoln brand. Let's take a look at that study, as well as two major factors that will drive sales in Ford and Lincoln's future.
Detroit gains ground
It wasn't long ago that import sales surged on the notion that Detroit vehicles lagged behind competitors on quality and reliability. That was true, but this study shows that the gap has narrowed significantly, and those perceptions shouldn't stick around much longer. Overall vehicle dependability has improved 5% over 2012, and has the lowest problem rate since the study's 1989 inception. Consumer loyalty and repeat customers are driven by dependability, making it an extremely important factor.
The five brands with the lowest rate of problems and best dependability are, from one to five: Lexus, Porsche, Lincoln, Toyota, and Mercedes-Benz. I was surprised to see Lincoln in the top five, but that's definitely a great sign for the revival of the brand. There's more: the link between No. 1 and No. 3 can be drawn to one man, Jim Farley.
Jim Farley, executive vice president in charge of Lincoln, has a history of success building premium brands. Ford was able to lure Farley away from his successful career at Toyota running sales and product planning for its Lexus line. Lincoln had two commercials in the Super Bowl, which helped create demand for its new-release vehicles. It's also helping encourage a quality push with its "Brand Champion" program that pays salesmen up to $500 for each Lincoln sold. Its aim is to have at least one associate at every Ford dealership trained on Lincoln products specifically. The demand is growing, evident by having more pre-order interest in the Lincoln MKZ than any vehicle since the Navigator. That said, Lincoln's MKZ, which is supposed to kick off the brand rebirth, has stumbled out of the gate.
The MKZ was supposed to arrive at dealerships in late December; unfortunately, some dealerships are still waiting. The lengthy delay has prompted Ford to dish out $100 gift certificates to the 1,000-plus consumers awaiting the luxury sedan. With consumer loyalty driven largely by dependability, it's important that Lincoln sends this vehicle out right the first time. Ford already stumbled multiple recalls while launching its new versions of the Fusion and Escape, and can't afford to have the same problems with the MKZ.
With Lincoln holding the No. 3 spot in reliability, does it have the innovation needed to compete with the likes of Lexus, Audi, and Cadillac?
In Fast Company's 2013 Most Innovative Companies ranking, Ford is the only full-line automaker recognized in the top 50! It joins big names like Nike, Amazon, Apple, and Google. The reasoning behind the innovative success is highlighted by recent efforts, including the Silicon Valley lab where Ford engineers get a chance to work with some of the best technology minds in the game. The newly redesigned Fusion, which is expected to sell well, has an abundance of innovative features at a reasonable price tag. Those features include one of the most advanced driver assist systems, adaptive cruise control, and lane keeping system. Ford also has the award-winning SYNC system that enables drivers to use voice technology to help keep focus on the road while completing other tasks. Ford will be working to incorporate its best innovation into the reborn Lincoln brand, and it will be key for taking market share.
Gone are the days where domestic brands can't match the quality of imports – Lincoln proves that with J.D. Power's No. 3 ranking. Innovation will be top-notch going forward as its engineers will be working side by side with the most creative minds in Silicon Valley. It has an executive team with a track record of success, and will be able to mold Lincoln into a relevant brand. There's reason for investors to be excited, as Lincoln represents incremental gains in vehicle sales; it can only go up from its recent low. In five years, if Lincoln has established itself as a worthy competitor and gained market share, it will help propel Ford stock to new heights. I like what I see in Ford, and I'm putting my trust in management to focus on rebuilding Lincoln as its next big step.
Ford has been performing incredibly well as a company over the past few years -- it's making good vehicles, is consistently profitable, recently reinstated its dividend, and has done a remarkable job paying down its debt. The stock has recently taken off, and it appears investors have started to notice what Ford is doing right. Does this create an incredible buying opportunity, or are there hidden risks with the stock that investors need to know about? To answer that, one of our top equity analysts has compiled a premium research report with in-depth analysis on whether Ford is a buy right now, and why. Simply click here to get instant access to this premium report.