1 Thing Ford Needs to Fix


Ford's world headquarters in Dearborn, Mich. Photo Credit: Ford Motor Company.

As any Ford investor would likely tell you, the biggest thing for Ford (NYSE: F  ) to fix right now is its operations in Europe. Last year the company lost $1.7 billion in the region; it had planned to lose $2 billion this year, until management revised it down to $1.8 billion last quarter. Consider that management plans to turn a profit for the full year in 2015 – the equivalent of a magic trick that could instantly produce nearly $2 billion to Ford's net income, a big deal considering that Ford reported $5.6 billion in net income last year. Ford just released its August results in Europe, and there are some very positive developments to consider: additional model launches, rental sales are down, and increased market share.

Market share improves
Ford's market share in Europe's traditional 19 markets grew by 50 basis points to 7%, marking the fifth consecutive month of total market share gain. The reason behind that growth was a sales increase of 2.3% to 53,400 vehicles for August, while the overall market declined 5.7%.

Another positive sign for Ford is that its small cars are selling well in the region. Ford's passenger car retail market share in the five largest Western European markets, (U.K., Germany, France, Italy, and Spain) was 6.5% last month, up 1.1 percentage points.

According to Ford, it was the No. 2 brand in Europe in terms of sales in August which further strengthened its year-to-date No. 2 best-selling position. The company isn't resting, though; there's still a lot of ground to gain before profitability is reached in the region.

Ford's 2014 Focus. Photo Credit: Ford Motor Company

Additional models will help
"Ford's sales volume and share momentum is continuing in Europe thanks to our customers' response to our ever-strengthening product line-up," said Stephen Odell, president, Ford of Europe, in a press release. "Now we are going even further. ... Today, we are confirming that we are accelerating our new vehicle introductions and now expect to introduce at least 25 new vehicles in Europe in the five year period from September 2012,"

Three of those models are still to be released by the end of this year, the EcoSport, Transit Connect, and Tourneo Connect.

More retail, less rental
When investors hear the words "fleet sales", most consider it a hideous term. That isn't always the case, as many fleet sales can be very profitable for automakers. What you don't want to see is a surge in rental sales, and Ford has avoided that.

"Compared to August 2012, Ford sales to retail and fleet customers increased 10 percentage points to 77 percent of total sales – 5 percentage points better than industry average," de Waard said. "At the same time, we reduced sales to rental companies and dealer self-registrations – which are generally less healthy for brand reputation and residual values – to 23 percent from 33 percent a year ago."

These are three very positive developments for Ford in Europe. Also, consider that Ford has cut its capacity 18% in the region which will leave it well positioned to improve profitability. A year ago, losses in Europe caused some investors to sell off Ford stock, dropping it as low as $9. Today the story is different because investors can see the light at the end of the tunnel and Ford's stock has risen accordingly, up over 70% in the last year. As more models are launched, retail share improves while rental sales decline, Ford is setting itself up to fix its biggest problem – a big win for long-term investors.

With the American markets reaching new highs, investors and pundits alike are skeptical about future growth. They shouldn't be. Many global regions are still stuck in neutral, and their resurgence could result in windfall profits for select companies. A recent Motley Fool report, "3 Strong Buys for a Global Economic Recovery," outlines three companies that could take off when the global economy gains steam. Click here to read the full report!


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  • Report this Comment On September 12, 2013, at 11:37 AM, TMFThump wrote:

    Daniel,

    I'm so pleased to see comments from an analyst who understands the distinction between fleet sales and rental sales. In some vehicles fleet sales are as profitable to the business as retail sales, without the turnover and residual value implications of sales to daily rental fleets. There are a number of automotive analysts who have been at the game for years and haven't picked up on that.

    You're a welcome addition to the TMF team!

  • Report this Comment On September 12, 2013, at 12:01 PM, TMFTwoCoins wrote:

    Thanks for the kind words Doug!

    That's one reason I really enjoy covering Ford in particular, there are quite a few investing aspects that many analysts overlook. The fleet sales is a good example, and Ford's often misunderstood debt is another great example.

    Daniel

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