Ford Invests in Europe's Lone Bright Spot

Europe, once a bright spot in global auto sales, has completely imploded and taken its consumers with it. Ford (NYSE: F  ) and General Motors' (NYSE: GM  ) losses in the region are a large reason why their stock prices remain undervalued. Both are expected to combine for as much as $4 billion in losses in Europe this year, a major drag on earnings. While both are on plan to break even in the region by mid-decade, a recent bright spot has appeared that has opened an opportunity for investment – Russia. Here are some details on what you can expect, and what Ford and GM are doing to take advantage of this development.

Russia's growth story is one of few to be found in Europe's mess which is near 20-year lows in auto sales. Its auto market is the second largest in Europe, trailing only Germany, and its passenger car market could grow to top 3.5 million in unit sales, according to PricewaterhouseCoopers. What's more is that Russia's long-term growth seems sustainable because of neighboring countries' growth, as well as its lower vehicle per population density compared to other more developed countries.

Enter Ford and GM
With staggering losses from Europe, Ford and GM have scaled back operations and refused to dish out incentives, conceding market share. Russia gives them an opportunity to take advantage of a growing market to help boost profits and market share in a tanking region. This could drastically help both Ford and GM with their goals to break even, or dare I say become profitable, by mid-decade.

Ford just built a plant with its joint venture Ford Sollers, and is expected to triple production capacity in the years ahead. GM is following Ford's lead and is in the process of investing up to $1 billion to increase its own production capacity in Russia.

SUV demand
According to LMC Automotive, registrations in Russia were up just over 10% compared to 2011 and almost one-third of those were SUV's. This demand is likely driven by the countries combination of weather and road conditions. The upshot here is that Ford's had great success lately with its SUV's. Its Escape is selling at record pace in the U.S. and is going to launch in Russia soon. Ford's Explorer which is also selling very well is now being produced in one of Ford's three Russian plants.

Bottom line
While Russia's market is just under 3 million vehicles in sales; it's still a significant market and bright spot that looks to grow in a region marred by sales declines. Ford's learned from its mistake of a slow start in China's rapidly expanding market, and is looking to jump into its fellow BRIC emerging market Russia quicker than its competitors. If Ford and GM look to break even in Europe – likely contributing to a surge in their respective stock prices – success with new model launches will be the large contributor. It's something I'll be keeping a close eye on, and other auto investors should too.

Need some new, high-potential, stock ideas?
With the U.S. relying on the rest of the world for such a large percentage of our goods, many investors are ready for the end of the "made in China" era. Well, it may be here. Read all about the biggest industry disrupters since the personal computer in 3 Stocks to Own for the New Industrial Revolution." Just click here to learn more.

Read/Post Comments (0) | Recommend This Article (1)

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.

Be the first one to comment on this article.

Compare Brokers

Fool Disclosure

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 2423425, ~/Articles/ArticleHandler.aspx, 9/29/2016 11:41:57 AM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...

Today's Market

updated Moments ago Sponsored by:
DOW 18,282.57 -56.67 -0.31%
S&P 500 2,166.45 -4.92 -0.23%
NASD 5,291.31 -27.24 -0.51%

Create My Watchlist

Go to My Watchlist

You don't seem to be following any stocks yet!

Better investing starts with a watchlist. Now you can create a personalized watchlist and get immediate access to the personalized information you need to make successful investing decisions.

Data delayed up to 5 minutes

Related Tickers

9/29/2016 11:26 AM
F $12.07 Down -0.03 -0.21%
Ford CAPS Rating: ****
GM $31.82 Down -0.08 -0.25%
General Motors CAPS Rating: ***