Most auto stocks had a asperous year in 2018, but Ford Motor Company’s (NYSE:F) year was rougher than most. The Blue Oval’s shares concluded the year bottomward about 39% as investors grew afraid about Ford’s operations about the world.
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What isn’t so accessible to see is that Ford is accomplishing the appropriate things to abode its problems. I anticipate it’s an arresting buy at accepted prices, alike admitting the improvements may booty some time to appearance up on the basal line. Read on to apprentice why.
F abstracts by YCharts. Chart shows the achievement of Ford’s banal in 2018.
There are a few affidavit why the banal has collapsed so dramatically. Best chronicle to apropos about Ford’s basal line: Investors attending for accumulation growth, but Ford’s profits accept been shrinking.
Revenue rose year over year in 2015, 2016, and 2017, but margins haven’t kept clip because Ford’s costs accept added forth with its sales. That’s a botheration of “fitness,” to use CEO Jim Hackett’s term, and it’s a botheration that he and Ford’s chief aggregation are alive to boldness by convalescent accomplishment ability and absorption on higher-margin products.
More recently, apropos about some of its bounded operations accept risen. Ford is alive to abode all of those concerns, but it has warned that improvements will booty time to be visible.
The world’s bigger new-car bazaar was an important advance adventure for Ford aloof a few years ago. But its business in China has taken a boxy turn: Sales were bottomward 34% in 2018 through November. (Full-year abstracts for China and Europe won’t be out until afterwards this month.)
Why the decline? Simply put, Ford’s artefact “cadence,” the abundance at which it introduces new models, fell abaft that of rivals. That’s a disadvantage anywhere, but it’s a big botheration in China’s super-fast-paced market. A bizarre banker arrangement and administration that weren’t carefully attuned to bounded trends didn’t help.
Ford has assassin a new baton for its China operation, automated its banker operations, and amorphous assignment on a bulk of new models. That should advice appropriate the ship, but it could booty a few years to absolutely about-face things about — added if China’s new-car bazaar stumbles for an continued period.
Ford’s bigger sellers in the Old Apple are its baby Fiesta and bunched Focus sedans. The Fiesta was all-new aftermost year, the Focus all-new this year, and both accept awash able-bodied in 2018: Through November, European sales of the Fiesta and Focus were up 30.2% and 9.5%, respectively, in 2018.
Ford won’t action its all-new Fiesta in the U.S., but it has been affairs actual able-bodied in Europe. Image source: Ford Motor Company.
The problem: Ford’s accumulation expectations for both (particularly the Fiesta) angry out to be ever optimistic. While both accept awash well, European car buyers are added allotment crossover SUVs over acceptable sedans and hatchbacks, aloof like their counterparts in added genitalia of the apple — and Ford has had to accord way on appraisement in adjustment to accommodated its sales targets.
While Ford’s baby crossovers, the EcoSport and Kuga (the Escape’s European twin), did able-bodied in 2018, there’s an altercation to be fabricated that Ford, a longtime SUV powerhouse, should accept done alike better. (Ford additionally sells the next-size-up Edge in Europe, but sales totals are small.) One problem: The Kuga, like the Escape, is an crumbling archetypal that has absent a footfall to newer rivals — and can no best command top dollar (or top euro) from buyers.
It’s not yet bright what Ford is planning to do in Europe, admitting it has said it will advance in added SUVs and bartering cartage for the arena (see beneath for some capacity on approaching products). Added capacity on Ford’s plan for Europe are accepted afterwards this year.
Ford is still accomplishing adequately able-bodied in North America, its best assisting bounded market. Ford’s U.S. sales were bottomward 3.5% in 2018, but sales of its best assisting articles captivated up well. Sales of the F-Series pickups, a acute accumulation indicator, rose 1.4% in 2018 and prices accept remained strong, admitting acute antagonism from all-new models from Fiat Chrysler Automobiles (NYSE:FCAU) and General Motors (NYSE:GM).
Ford’s F-Series pickups abide to advertise actual able-bodied in North America, but added articles accept slipped. Image source: Ford Motor Company.
But actuality again, anachronous articles are apparently costing Ford sales. Sales of its mainstay crossover SUVs in the U.S., the Escape and Explorer, were both bottomward year over year through November. And its sedans are in a huge slump: As a group, U.S. sales of Ford-brand cars were bottomward 16.7% through November.
Ford doesn’t accept the excess-capacity issues that led GM to advertise several bulb closures in North America in November. Its plan to addition advantage in its home arena is acceptable to be beneath desperate than its old rival’s, and it’s acceptable to be apprenticed by a bulk of new articles in the best assisting segments and bazaar niches: SUVs, trucks, bartering vehicles, and achievement vehicles.
Ford has a bulk of new articles advancing over the abutting brace of years that will go a actual continued way against acclamation all of the aloft concerns. These new articles are all actuality advised to aerate profitability, with abounding aggregate genitalia beneath the bark and automated options lists advised to abridge manufacturing.
Arriving in 2019:
Note that the Escape and Explorer annual for about 70% of Ford’s absolute SUV sales; they’re actual important, and not aloof in the U.S.
Arriving by the end of 2020:
Beyond the above, Ford has promised some added new articles tailored accurately to the Chinese market. And while sedans are no best a antecedence at Ford because of crumbling sales and apropos about profitability, the company’s iconic auto is set for a revamp: An all-new Mustang is accepted in 2021 — and, yes, there will be a amalgam version.
The midsize Ranger auto will access at U.S. dealers soon. Abounding added new Fords will chase over the abutting two years. Image source: Ford Motor Company.
But why advance in Ford now, back an bread-and-butter abatement seems to be looming aloof over the horizon? The acknowledgment lies in Ford’s 7.6% allotment crop — accurately in Ford’s promises not to cut its allotment unless things get dire.
CFO Bob Shanks has said again that Ford intends to advance its allotment at the accepted akin ($0.15 per quarter) through the abutting recession. That’s not an abandoned promise: The banknote breeze from Ford’s captive-financing accessory will awning abundant of the amount of advantageous dividends, and Shanks has said that Ford will be accommodating to tap its ample banknote abundance ($23.7 billion as of Sept. 30, 2018) if bare to ensure that the payments continue.
Ford’s affiance to advance its allotment isn’t aloof administration blather. It’s a austere charge that I apprehend Ford to stick to unless the abutting recession is so astringent or abiding that it’s affected to bankrupt that banknote reserve. (Ford has curve of acclaim to tap if that happens, but those won’t be acclimated to pay the dividend.)
So to acknowledgment the catechism at the alpha of this section: If you advance in Ford now, and reinvest that allotment through whatever bread-and-butter storms and restructuring affliction lie ahead, you ability be actual admiring with the after-effects back the abridgement starts to balance and buyers acquisition Ford’s showrooms abounding of new products.
Ford’s banal soared afterwards the 2008-2009 bread-and-butter crisis, ascent 370% from the end of 2008 to the end of 2011. Why? Ford’s sales jumped in the aboriginal stages of the bread-and-butter accretion because it had new articles in showrooms while rivals were scrambling to restart adjourned development programs. Will history repeat? It aloof might.
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