I own Ford Motor Company (NYSE:F), and the recent drop of 9%, due to expectations of a weak 2013 in Europe, suggests an opportunity to buy more. Sure, Europe will continue to bleed money — Ford expects to lose $2 billion in Europe this year, but in my opinion this is already reflected in the price. At $49 billion, Ford ‘s market cap is a low 37% of sales as compared to Toyota Motor Corporation (ADR) (NYSE:TM)’s 77%, and even lower than Tata Motors Limited (ADR) (NYSE:TTM)’s 46%!
Strengths
1). Huge brand recognition and competitive advantage as the only American auto maker that was not bailed out by the taxpayer.
2). Strong American pride for the same reason assures solid demand from those wanting an American brand.
3). Repositioned itself as a high quality brand after two decades of recalls, accidents and poor quality.
4). In six short years, CEO Alan Mulally transformed Ford from a beleaguered fiefdom run by bean counters with no vision and lousy quality standards, into a world class “car” company, by focusing on great products and quality standards.
5). Strong Brand Loyalty: An Experian report for Q3/2012 shows Ford topping Toyota 44.1 to 43.3 for brand loyalty, and Ford Fusion owners as the most brand loyal, with more than five out of ten returning to Ford.
6). Competes well in most segments that it is in — Dominates pickups, strong number 2 with Fusion in the mid size, and competes well with Focus in the economy segment.
7). Fusion’s huge 65% YoY growth in January 2013 suggests that the Fusion could become a Camry-like cash cow for Ford. Most automakers would love to be in Toyota’s position with Camry contributing about 33% of Toyota’s sales, and being its largest profit center. Ford has been in that position with the Taurus earlier, and could well return to that sweet spot with the Fusion.
8). Leadership in control and well planned for the next decade: With the brilliant Mulally stepping down for longtime Ford executive and Chief Operating Officer Mark Field, Ford will remain in great hands.
Weaknesses
1). Operating margin to remain flat at 10% next year.
2). Late entrant in China; a lot of ground to cover, which will use up at least $5 billion of capital.
3). Cost of funds higher than bailed out competitors — Ford has a debt to equity ratio of 5.3 compared to 0.4 for General Motors.
4). Europe (about 22 % of worldwide sales) will continue to remain weak for at least two to three years and drain cash.
Opportunities
1). Ride the trend towards migration to bigger and more profitable vehicles due to the housing recovery.
2). Builders’ confidence will lead greater demand for pickup trucks, which don’t last as long as passenger cars.
3). Maintain leadership position in the fuel economy segment — As Daniel Miller‘s article pointed out, Ford’s Ecoboost engine has been extremely successful. KPMG ‘s survey cited 92% of respondents choosing fuel efficiency as their number one factor. This is a trend that is going to dominate the next generation of cars and drivers.
4). Ride on its coat tails of being a fuel efficient brand to grow in the fast growing green segment: Ford, though lagging way behind Toyota, which dominates this segment at 76.2% of the U.S. market in Q3, 2012, is still the second best. And with the fast growing C Max hybrid, Ford could emerge as the other strong player.
5). Use its experience to manage Europe’s recession: Among auto makers in Europe, Ford is perhaps best positioned to deal with, and emerge stronger from, Europe’s lack of growth.
6). Pent-up demand: The average age of the U.S. automobile has gone up to 10.8 years, ahead of 9.4 in 2007 and 5.1 in 1969. Sure, building better cars has a fair amount to do with Americans keeping their cars longer, but 10.8 years is a historic high and a catalyst for growth.
