A great way to look at a company through a wide lens is by using a SWOT analysis, which looks at a company's strengths, weaknesses, opportunities, and threats. It's a valuable way to assess both the pros and cons of a potential investment or business.
Ford Motor Company (F 0.85%) is America's second-largest automaker, and has historically been known for producing popular SUVs, crossovers, and full-size trucks. It survived the recent Great Recession while its Detroit counterparts filed for bankruptcy, and has since turned its business around in an impressive fashion. With that said, there are still quite a few factors that investors often overlook. Let's identify some of those factors using the SWOT analysis.
- "One Ford": In 2006, when former CEO Alan Mulally first took over, he set a strategy to streamline Ford's global lineup of vehicle platforms and to focus on higher-quality vehicles, improved fuel efficiency, and decreased costs. Ford's number of platforms has consolidated from 27 in 2007 down to nine by next year.
- Obligations: Ford has drastically reduced its debt and pension obligations in recent years, enabling the company to attain investment-grade ratings from credit rating agencies. Ford's automotive debt has declined from $19.1 billion in 2010 down to $13.8 billion at the end of 2014, and it will decline to $10 billion by 2018. Also, Ford's pension plan was underfunded by a staggering $18.7 billion at the end of 2012, but was halved to $9 billion at the end of 2014.
- Loyalty: A major strength is Ford's brand itself. The Blue Oval has more consumers returning to purchase another Ford vehicle than any other brand, according to IHS Automotive's analysis of new vehicle registrations for the 2014 model year. It's the fifth consecutive year Ford has taken home top honors for Overall Loyalty to Manufacturer.
- Finance arm: Ford Credit remains a competitive advantage for the automaker. It generated $1.9 billion of pre-tax profit in 2014, and ended up with $1.7 billion of that as net income -- a healthy chunk of Ford's overall $6.3 billion pre-tax profits and $3.2 billion net income for 2014.
- Luxury: It's becoming increasingly important for automakers to have a successful global luxury brand to help increase average transaction prices and profit margins. Ford's luxury Lincoln brand has struggled for years, and a full turnaround is probably a decade away. Lincoln sales have been cut roughly in half, from around 190,000 units in the U.S. in 2000 to fewer than 90,000 units annually over the last five years.
- Overseas: Ford, much like many automakers, is having a rough time in Europe and South America. Ford lost a total of $4.3 billion in Europe operations from the beginning of 2012 through 2014. Management expects to lose less in Europe this year than in 2014, and to break even in 2016. Meanwhile, South America went from a $33 million loss in 2013 to a whopping $1.1 billion loss last year. Both regions will continue to drag on earnings in the near term.
- China: Already the world's largest automotive market, China still has fewer than 100 cars on the road for every 1,000 people. That leaves a lot of room for growth before it reaches the level of saturation of Europe or Japan, which have roughly 600 vehicles per 1,000 people, or the U.S., which has roughly 800 vehicles per 1,000. Many analysts anticipate China accounting for one of every three vehicles sold globally by the end of 2020. Ford was late to enter China's market, but has gained ground quickly and should continue to post double-digit sales growth annually in the near term.
- India: In addition to India and China driving emerging-market growth for Ford, India is going to play an increasingly large role in its export strategy, which covers more than 50 global markets. Ford is establishing India as a global sourcing hub to accelerate its export volume and effectively scale its business.
- Macroeconomic: There are macro threats to Ford that are ever-present year after year, which include geopolitical events preventing sales in emerging markets, as well as fluctuations in foreign currency exchange rates, commodity prices, and interest rates.
- Industrywide: Ford is of course subject to threats that affect all automakers, including a decline in industry sales volume in the event of a recession, potential market shift from more profitable vehicles to smaller and cheaper vehicles, and increased price competition which reduces profitability.
- Union: When the automotive industry was in dire straits before and during the Great Recession, United Automobile Workers accepted sacrifices in an attempt to save the automakers from bankruptcy. Now that the industry is booming again and Detroit automakers are again profitable, the union has more negotiating leverage to demand increased wages and bonuses when the groups hit the table later in 2015. The threat here is a more-than-expected increase in costs for automakers, as well as potential UAW strikes that could cause production problems.
- Competition: In addition to increased competition from historical competitors in the U.S., a long-term threat will be the potential of Chinese automakers to export or produce vehicles for the U.S. market. While the threat is a ways off in terms of Chinese automakers really competing on quality and design, Chinese automaker Guangzhou Automobile Group plans to sell vehicles in the U.S. as soon as 2017.