Why Ford Remains a Solid Investment Despite Short-Term Painshttp://www.fool.com/investing/general/2014/02/27/why-ford-remains-a-solid-investment-despite-short.aspx Sharda Sharma
February 27, 2014
Ford (NYSE: F) recently released its results for the fourth quarter and the numbers were pretty good in comparison with last year. The automaker's net income rose considerably. Despite the good numbers, investors raised their eyebrows at Ford's decreasing margins, which occurred because of tough competition from Japanese automakers. However, compared to peers like General Motors (NYSE: GM) and Toyota Motor (NYSE: TM), Ford is on the right track.
Looking ahead, 2014 is going to be a period of transition in the U.S. market, which is why investors should take a closer look at what the company is up to.
A closer look at the quarter
On the other hand, Ford's European operations showed signs of improvement from last year as the loss from these operations came down to $571 million. Operating margin and pre-tax loss came in at -5.8% and $1.6 million in Europe, respectively. Ford's European market share remained unchanged in the fourth quarter year on year.
Moreover, Ford's South American operations posted a loss of $126 million versus a profit last year. The loss came on account of plant downtime in Brazil so the automaker could prepare for new launches in 2014, along with lower production in Venezuela due to limited availability of dollars. The pre-tax loss of $271 million was partially offset by higher pricing.
What the road ahead looks like
However, investments in new vehicles should help Ford do well in the future if we look past the short-term pains. In reference to the market abroad, the automaker is positive about Europe and estimates that it will cover its losses and reach a break-even point by 2015. It is counting on new models to boost its growth in the eurozone.
The company has launched 11 new vehicles over the past 15 months and plans to roll out 10 new models in 2014 alone. These moves have reaped fruit as Ford's sales grew 9.2% in Europe in January, and the launch of new models should help the automaker sustain the momentum.
Also, China seems to be a strong market with bright growth prospects for Ford. Auto sales in China rose 14.1% in the fourth quarter, and production rose 21.2% over last year. The strong growth in China was driven by passenger cars. The January data shows a rise of 53% in Ford's sales in China. With new launches scheduled one after the other in 2014, the company is looking forward to capturing more market share.
The ailing South American economy is still a concern for the automaker, but it will continue with its strategy of expanding its product lineup and replacing older models. Ford is also bolstering its infrastructure worldwide to support the production of new vehicles, along with the innovation of new products.
The company intends to add 5,000 new jobs in the U.S. alone and another 6,000 abroad in 2014. Many of these jobs will be allocated to research and development. The automaker is focusing on battery-based technology as the U.S. and other markets are tightening their emissions and mileage standards.
Peers under trouble