Measuring Ford Motor Company (F)’s Future Growth

Europe
As Ford Motor Company (NYSE:F) executives reiterated during Wednesday’s conference call, they expect to bring the losses in Europe to an end by the close of 2015. Even if the company merely breaks even, at an estimated 2013 loss of $2 billion, the cash would go straight to the bottom line.

Recently I’ve been touting that Ford’s Credit division has been responsible for offsetting European losses — returning $1.7 billion pre-tax last year. Ford Credit has taken on more than $80 billion in long-term, low-interest-rate debt that it dishes out to consumers buying vehicles — at a higher interest rate.

Two things can happen to inflate profits from with Ford Motor Company (NYSE:F)’s Credit division. One is that interest rates rise across the board while Ford’s long-term loan interest remains low, allowing Ford to increase its profit margin on each loan. I don’t expect much help on this front by 2015. Second, as the economy improves — we hope — the number of people taking loans to purchase vehicles will increase.

If the first-quarter pace continues, this year Ford Credit will earn $2 billion in pre-tax profit, and to be cautious we’ll just stick with that number through 2015, resulting in a $300 million pre-tax income addition to our number.

Bottom line
At the starting point of $7.7 billion, adding in all the figures we covered from North America to Ford Credit, we sit at a 2015 estimated pre-tax income of $11.8 billion. That’s a 15%annual growth rate over three years. I don’t think it seems out of reach next to analysts’ estimates of about 10%.

I’ve learned when estimating that it’s usually best to keep things simple, as we did. That said, in doing so there’s an incredible amount of caveats in this estimate. It doesn’t account for how much structural costs will increase as Ford continues to heavily in China. We also have to consider Ford’s pledge to pay into its underfunded pension billions more than required in the years to come. It’s even possible if things continue to go well that management could announce an increase to the dividend by mid-decade.

What do you think about that simple estimate? Is it attainable? At the very least, this all should give you a better idea of how fast Ford could grow its pre-tax income when losses in Europe subside and market share is gained in China. Ford has a ton of room to run globally, and that potential is hard to measure — but the upside sure looks appealing!

The article Measuring Ford’s Future Growth originally appeared on Fool.com and is written by Daniel Miller.

Fool contributor Daniel Miller owns shares of Ford. The Motley Fool recommends and owns shares of Ford.

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