Ford: Will The Uptrend Continue?

| About: Ford Motor (F)

As the economies of the United States and most of the world begin to recover, automakers have seen increasing signs of a dramatic pickup in their businesses.

What Has Been Happening?

Japanese automakers Toyota (TM), Honda (HMC) and Nissan (OTCPK:NSANY) have seen their sales rebound from the damages that they incurred as a result of the devastating 2011 tsunami disaster.

General Motors (GM) has the highest U.S. market share of any automaker, with a 17.9% share, down from 19.6% in 2011. Ford (F) has a 15.5% U.S. market share, down from 16.8% in 2011. Ford and GM's market share decreases were due to sales increases by the Japanese automakers. GM, Ford and Chrysler have also seen a rebound in their businesses. GM posted U.S. sales growth of 5% in December 2012, compared with the same month in 2011. Ford increased sales 2%, and Chrysler's sales rose 10% in December 2012. In the fourth quarter of 2012, GM sold 245,733 vehicles and had a 5% increase in year-over-year sales. For the year just ended, U.S. auto sales rose 13.5% to nearly 14.5 million new vehicles, the best performance since 2007, according to Reuters calculations. In December sales for automakers increased by 9% on a year-over-year basis. Research and consulting firm Polk said it expects U.S. auto sales to hit 15.3 million vehicles in 2013. GM and Ford both predicted industry sales of more than 15 million vehicles, but Toyota offered a more modest forecast of 14.7 million vehicles.

Growing Sales

Ford's sales figures are growing. Ford had its strongest December in terms of sales since 2006. U.S. sales of its cars, utilities vehicles (SUVs) and trucks all trended higher. In the U.S., sales of cars shot up 5 percent, utilities shot up 7 percent, and trucks shot up 2 percent for the year. In total, Ford sold 2,168,015 vehicles in 2012. It was the only brand to top 2 million U.S. sales.

Ford showed strength in all its segments. Sales of Ford's small cars were up 29 percent in 2012. 316,006 small cars were sold, and overall car sales reached 760,646 sold. Focus sales skyrocketed 40% in 2012. The all-new C-MAX continued its strong sales trend. 13,309 C-MAX vehicles were sold in the first four months of sales. This gave the C-MAX the fastest sales start of any hybrid vehicle in the industry.

Ford again became America's best-selling brand of utility vehicles in 2012, with 619,470 vehicles sold. Escape broke its 2011 record sales levels with 261,008 vehicles sold, up 3 percent. Explorer gained 17 percent for the year, with 158,344 vehicles sold.

Ford dominated the truck segment in 2012. The F-Series was crowned America's best-selling pickup for the 36th straight year. It was also named America's best-selling vehicle for the 31st year in a row. Ford sold 645,316 F-Series Trucks in 2012, marking a 10 percent increase compared to 2011.

According to Ford's Vice President, U.S. Marketing, Sales and Service, "Ford finished 2012 strong, with retail sales showing improved strength as more customers returned to dealer showrooms." He also said, "Ford's fuel-efficient cars and hybrid vehicles showed the most dramatic growth for the year, and we achieved our best year for commercial vehicle sales since 2008."

Growing Financials

Ford had third quarter earnings of $1.6 billion, down from $1.64 billion in the third quarter of 2011. It had revenue of $32.1 billion down from $33.1 billion in the third quarter of 2011. Ford earned $2.32 billion in North America, which was an increase from $1.55 billion in the third quarter of 2011. The primary reason for Ford's decreased earnings was its European business, were Ford has lost more than $1 billion in 2012 and expects to lose more than $1.5 billion for the year.

Ford has increased income in each of the last three years from -$14.7 billion in 2008 to $20.2 billion in 2011. One of the primary drivers of Ford's turnaround was its "One Ford" initiative. The One Ford business plan was initiated in 2008 by Ford's CEO Alan R. Mulally. The One Ford initiative was designed to reduce cost by increasing efficiencies and streamlining the company's global operations. One part of Ford's new business plan is to cut its losses in Europe. In October Ford announced that it would be making steep cuts in its business. The cuts included closing three factories in Europe and eliminating 5,700 jobs. European auto sales have fallen to a 20 year low, and it is a wise move for Ford to cut its production. Ford said the cuts would save about $500 million in annual costs, and help it return to profitability in the region by mid-decade. The European plan was similar to the plan that Ford used to turn its North American business around, after the announcement of the One Ford plan.

Another piece of the Ford One plan was a change in Ford's new car lineup. The new lineup emphasizes the development and sales of lower mileage cars and electric vehicles.

A third piece of the plan was to shore up the company finances and to improve the balance sheet. Ford has done this as evidenced by their balance sheet which shows that it debt load has decreased from $27 billion in 2008 to its current debt load of $18.7 billion.


The auto-making industry has shown marked improvements due to an improving economy, more availability of credit and the need by consumers to replace older cars and trucks. As a result, vehicle sales are up and the stocks of automakers are near 52 week highs. On January 3rd, Ford's stock hit a 52 week high of $13.70, while on January 3rd, GM's stock hit its 52 week high of $36.23 and on January 4th Toyota hit a 52 week high of $97.55. Of the top automakers, I believe that Ford's stock has the best chance to continue moving higher. With a price to earnings ratio of 3.08 compared to GM's PE of 11.2 and Toyota's PE of 16.13, the stock looks cheap. I also like the improvements that Allan Mulally has made through the Ford One business initiative. I was encouraged by the recent announcement that Mr. Mulally (who was rumored to be retiring) would remain with the company through 2014.

Ford's stock price has rallied by 53% since its August 2nd, 2012 low of $8.82, and I believe that the stock price will continue to trend higher.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.