The results are in and Ford's (NYSE:F) success is driven by two of its hottest models – the Fusion and the Escape. Those two have a chance to do something that no other Ford vehicle besides the F-Series has done in almost 10 years – top 300,000 sales in the U.S. It's only a recent trend: Ford was long known for producing a quality truck and its car models were largely left for dead. Let's look at some numbers and see why some investors are excited about Ford.
Over the first four months of the year Ford's car and utility segments are up 12.5% and 18.1%, respectively, versus last year. The segment leaders are the Fusion and the Escape; take a look at what they've done over the last five years, and at this year's pace.
Happy consumers creates happy investors
It's simple really, if the consumer continues to eat up these new models the resulting market share and revenue growth will make investors like me happy. The Escape's review on Edmunds.com has some great insight. Edmunds says that the new model Escape is better in every way from its predecessor and that its primary competitors can't match its EcoBoost engine options. Most of the competitors can't match its interior either. Edmunds follows that up by saying that one possible downside is that once you load up on premium add-ons, it becomes one of the more expensive models. Well, looking at the huge wave of sales, consumers are buying it up – and that makes investors like me happy. Look for situations like this to help keep Ford's operating margins strong – a key factor for a successful investment.
Toyota and Honda have topped Detroit in U.S. market share for some time now and only recently has Detroit begun to gain a little market share back. In the first quarter, Ford's brand – excluding Lincoln – increased its market share up to 16.5% from 15.5% in 2012. This point is very important right now as the U.S. automotive market is gaining steam and producing nearly all of Ford's profits, and much of GM's. Any gain in market share here is very valuable. It's also very profitable as plants are running near capacity, allowing each vehicle to roll off more profitable than the one before it.
I think both General Motors (NYSE:GM) and Ford are undervalued today, for different reasons. General Motors is the No. 2 global automaker in sales and is making a concerted effort to take the top spot. It's refreshing a ton of models to further boost its top-line sales that aren't optimized because of old age – it owns the world's oldest vehicle portfolio.
Ford on the other hand can't yet compete with GM on top-line-sales revenue; it doesn't sell enough vehicles. What Ford has done, though, is even more important: It has created economies of scale and is running more efficiently than its competitors – taking home more of each revenue dollar. It's U.S. margins for the first quarter were 11%, which is extremely strong.
If you were to combine the top-line sales of GM and bottom-line efficiencies of Ford, the resulting fictional company would crush competitors all over the globe. Each one is striving to become that company by fixing its respective weakness. If Ford is going to accomplish this success it will need winners similar to the Fusion and Escape across its entire vehicle line.