2015 Is Very Important to Ford

Over the last year, Ford's (NYSE: F  ) stock price has soared nearly 75%. With North America bringing in nearly all of the company's profits, there's a ton of potential growth left for Ford internationally. Of course, with any company there are hurdles to face, problems to fix, and objectives to meet. What's interesting regarding Ford is that there are big expectations for what those big catalysts will put in motion around 2015. If these three things go well, Ford could see its share price soar yet again.

Pension plan
At the end of 2012, Ford's pension plan was underfunded by a large amount – $18.7 billion. That pales in comparisons to rival General Motors' (NYSE: GM  )  pension fund, which was underfunded by $27.8 billion. By 2015, Ford plans to have its pension plan fully funded, a large task to be sure. Ford has consistently stepped up its discretionary contributions to bring its obligation down. It contributed $1.1 billion in 2011, then $3.4 billion in 2012, and plans to contribute $5 billion this year.

In addition to increased contributions, we can expect discount rates to rise from the low's we've seen recently. When discount rates rise, Ford's obligation to pay into its pension fund – the $18.7 billion – will decline drastically. A 70-80 basis point rise in discount rates could chop that number almost in half. If Ford's pension plan becomes fully funded by 2015, it will be a huge boost to the share price and free up capital to be spent elsewhere.

Double Chinese share
Ford was late to the game in China and is watching competitors GM and Volkswagen dominate the region. Better late than never, especially to the world's largest and fastest-growing automotive market. Ford's plan is to launch 15 models into the region by 2015 to achieve its goal of doubling its market share from 3% to 6%. That seems like small potatoes, but believe me it's a significant improvement in an industry where market share gains of a fraction of a percent are drastic.


Slide from Ford's second-quarter earnings presentation.

Ford expects 40% of its revenues to be from the Asia-Pacific-Africa region by the end of the decade, so 2015 will be a pivotal step to achieving that growth. Ford just set a monthly record in China for July sales – a 71% increase over last year. Ford's year-to-date numbers are up 50% over last year and new launches of the Kuga and EcoSport continue to sell very well in China.

Break even in Europe
Europe has been a drag on Ford's profit for years. Just recently Ford was able to reduce the amount of losses it expects for 2013 – down from $2 billion to $1.8 billion. Even amid a declining European market Ford was able to increase its wholesale volume, market share, revenues, pre-tax profits, and operating margins – not too shabby, right?

Moreover, Ford was able to improve its market share mix to include much more retail share rather than rental and fleet sales. That means Ford's sales are more profitable, and the resale value of its vehicles will be higher.


Graph by author, information via Ford's second-quarter earnings report.

Bottom line
If Ford can break even in Europe, double its market share in China, fully fund its pension plan, and let North America continue to pump out profits – 2015 will be an excellent year for Ford. As these events develop it will add value to Ford and we'll see the stock price increase gradually. By the time 2015 gets here, I believe investors will have been well rewarded.

Those are three reasons to be optimistic for Ford in 2015, but do you know the major developments that could crush Ford? The secrets to success that could make investors like you rich? The answers are simpler than you think, and The Motley Fool is sharing them in a free report entitled, "5 Secrets to Ford's Future." Inside we outline critical information every Ford investor must know, so click here now for your free report.


Read/Post Comments (0) | Recommend This Article (6)

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.

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: 2598461, ~/Articles/ArticleHandler.aspx, 8/30/2014 10:43:06 PM

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...


Advertisement