Is Ford Motor Company in Trouble?

American automaker Ford Motor Company  (NYSE: F  ) is making less money today than it was a year ago. The company recently reported a first-quarter profit of slightly below $1 billion, which represents a huge decrease from the $1.6 billion it made in the year-ago period.

The recent earnings miss has raised questions about Ford's ability to remain competitive in a fierce environment where rivals such as General Motors (NYSE: GM  ) and Toyota (NYSE: TM  ) use aggressive pricing strategies and high-quality standards to capture market share in North America and China. Moreover, on May 1 the company announced a surprise drop in April sales while other car manufacturers reported strong numbers. Is Ford in trouble?

Source: Ford

Analyzing the results
According to its latest earnings results, Ford reported that its profit had plunged 39% from the same quarter of last year.

On the top-line front, Ford's revenue slightly increased from $35.6 billion to $35.9 billion, enough to surpass the $34.54 billion in revenue that the Street was expecting.

It's all about market share
Although Ford's revenue managed to beat analysts' expectations, from a comparative perspective the company looks to be underperforming in its second quarter so far. This can be seen from its April monthly sales figures. On May 1, the company reported a year-over-year drop in sales of 0.7%, while the Street was looking for a gain of 3%.

This is particularly worrisome if we consider that all of Ford's major competitors saw improvements in sales, with Toyota and Chrysler reporting double-digit increases and General Motors reporting a 7% jump. Simply put, consumers left Ford in favor of Toyota, General Motors, or other manufacturers. 

Recapturing market share
To avoid another miss, Ford needs to both recapture market share in traditional markets and strengthen its positions in fast-growing markets.

To achieve this, the company is working on its Ford One plan, which aims at restructuring parts of its business such as its balance sheet and product development.

In terms of product releases, the company is launching 23 new models this year which include redesigned versions of the Ford Mustang, Ford Edge, and Lincoln MKC crossovers. Not surprisingly, Ford has targeted 16 of its new vehicles at its core North American market, where some consumers may have delayed their purchases until Ford releases the new models.

The 2015 Mustang. Source: Ford

The company should benefit from its strong brand reputation in China, which will help to increase its top line in the world's second-largest auto market. Through various partnerships and joint ventures, Ford is expected to exceed 1 million sales in China this year.

Notice that the introductions of five different Lincoln models in China by 2016 should help Ford to remain competitive against General Motors, which is very popular in Asia and sells roughly 100,000 Buicks per month in China.

As for Toyota, political tensions between Tokyo and Beijing likely had a negative effect on Toyota auto sales during the past two years. As a result, the Japanese giant is currently the sixth-largest auto maker in China by vehicle sales, well below General Motors. However, it plans to strengthen its market position by bringing 15 new car models to China by 2017. In the short run, both Ford and General Motors are likely to remain in better market positions than their Japanese competitors.

Final Foolish takeaway
Regaining market share won't be easy. The massive amount of new cars that Ford plans to release this year in key markets will probably help to improve its top line, but the company may see its profits fall again because product releases usually involve high marketing costs.

Because of this, the company may continue to deliver weak earnings in the short run. However, if the new product launches go well, Ford may become an interesting earnings story in the long run. At any rate, this transition year is likely going to be very interesting for the company. In terms of new product releases, this year will probably be one of Ford's most active in the past 50 years.

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Editors Note: a previous version of this article mistakenly included April sales results in relation to Ford's first quarter earnings. The Motley Fool regrets this error.

Read/Post Comments (7) | Recommend This Article (8)

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 May 12, 2014, at 12:52 PM, spawn44 wrote:

    One of the most idiotic articles I have read lately.

  • Report this Comment On May 12, 2014, at 1:42 PM, FordMan26 wrote:

    Sorry Victoria but I feel your article is very poorly written. You don't address at all why Ford's 1Q profit was down - largely due to a preemptive charge for potential future warranty claims. You reference an earnings miss as evidence that Ford my no longer be competitive yet earnings are not a predictor of product competitiveness: it's the other way around and you offer no evidence of poor product. Your whole section on market share doesn't reference market share at all, it talks about sales volume, and fails to mention the drop in Ford sales to rental fleets during April. When talking about China you say nothing about Ford's sales being up over 50% in China last year and again up about 45% in 2014 over 2013. I'm afraid this article is a bunch of facts thrown together with a sensationalized title aimed purely at getting views and not delivering useful information or insight.

  • Report this Comment On May 12, 2014, at 3:25 PM, ranchdog wrote:

    Hard to understand why The Motley Fool would allow such an inaccurate article to be published under their name. This author should be banned from further publications.

  • Report this Comment On May 12, 2014, at 10:35 PM, simba6974 wrote:

    Lol this is funny, all Ford is doing is putting all their money back into new models and its coming up to contract time, they don't want to give us a RAISE, which we haven't had in almost 11years...they always try to make the company look bad so they can get out of giving us's the same old story every 4 years

  • Report this Comment On May 12, 2014, at 11:02 PM, shipdriver71 wrote:

    This is generally not what I expect from this site. Conjecturing that a company is in trouble for making a smaller but still huge profit? Seriously? And then saying that Ford is losing customers to competitors while a few sentences later saying that they are waiting for the slew of new models to come out? And all this angst and fear over a single quarter report without even a mention of actual trends?


    A) This exemplifies how short-sighted and skittish stock speculators are today.

    B) I know you can do better than this, Ms. Zhang.

  • Report this Comment On May 13, 2014, at 3:03 AM, btc909 wrote:

    Ford took pride in jacking up prices. The Edge & Taurus are laughable. The Focus is forgotten in the US market. Hint bring the Wagon to the US. My Ford Suck, sucks. The Ranger or F-100 should have been on dealer lots already. The availability of the Transit Connect Wagon is pathetic. And so is the advertising. Epic fail on the engine options as well. The Fiesta is doing well and the 2011 issues seem to be resolved finally. The C-Max is nice on the inside and looks like a Fleet Rental on the outside. The C-Max Energi is moronic. The Fusion is doing well. The Explorer is ancient already.

    Ford needs to stop running the entire company around the F-150.

  • Report this Comment On May 13, 2014, at 1:00 PM, todd48229 wrote:

    @Simba1964. You may not have had a raise in 11 years however that is much better than the rest of us. We all took cuts and lost jobs. So our median income is much less than it was 11 years ago. I think you should be happy and content.

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Victoria Zhang

I'm an economist, coffee addict and value investing fan. My obsessions include fashion, online retail, traveling, disruptive technology, and Asia.

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