Ford Is Counting on China

On July 5, 2009, the Associated Press reported that Ford Motor Company's (F) sales in China have surged 14% year over year to 197,212 in the first half of 2009. Strong demand for the company's low-cost Fiesta car helped the growth in sales. Ford has sold 18,224 Fiestas since the model was launched in China in March 2009.

According to the AP, Ford's sales at its Chinese passenger car joint venture, Changan Ford Mazda Automobile, rose 20% in the first half to 140,386 vehicles. Jiangling Motors Corp., Ford's commercial vehicle unit, reported first-half sales of 53,327-units. In contrast, Ford reported a 33% decline in sales in the domestic markets on the back of the global slump.

Declining industry sales have pressured Ford's supply base. According to the AP, the company is eliminating short-term suppliers and is cutting down the number of suppliers to 1650 in 2009 from 2198 in the previous year. The company plans to further reduce the supply base to 750 in the near term. Ford purchases about $90 billion in parts annually.

While peers including General Motors (GMGMQ.PK) and Chrysler Group LLC have resorted to government aid and court protection from creditors, Ford has remained independent and managed to stay afloat. However, one thing common to these automakers is declining domestic sales.

This has brought the emerging markets into focus. China has been a major target for automakers who have been witnessing declining demand in North America and other major markets. These automakers are counting on China's relatively healthy sales, assisted by government stimulus programs, to help drive global revenues.

According to the Associated Press, the government of China has reduced retail sales tax on small cars by 50% in the beginning of 2009. The government is also providing subsidies in rural areas to increase demand. This stimulus has helped industry sales, which were up 14% year over year in the first five months of 2009.

Ford is investing around $1.5 billion in new small-car facilities in China, India and Thailand as part of its attempt to grow its business in the region. Ford's F-series -- including the all-new Fusion, Edge, Ford GT, Ford Five Hundred, Ford Freestyle and the Freestar -- accounts for a significant portion of the company's total sales volume and profits.

After introducing Ford Fiesta in China, Ford plans to introduce it in Europe and other markets by 2010. These introductions should go a long way in strengthening Ford's position.

However, rising gas prices are affecting the company's operations. Ford dropped its plans of becoming profitable by 2009 due to a difficult operating environment including an uncompetitive cost structure. Hence, we rate the stock a Hold and set a six-month target price of $6.50.

Comments

[john mullinax:]

I thought this was a pretty good post until I read this...

"Ford's F-series -- including the all-new Fusion, Edge, Ford GT, Ford Five Hundred, Ford Freestyle and the Freestar -- accounts for a significant portion of the company's total sales volume and profits."

This sentence gives the appearance that you are deeply confused about Ford's business and market position.

To correct a bit: F-series refers to the F-150 and F-250 lines of pickup trucks... *none* of the vehicle models you mentioned are actually included in the F-series family. Also, the Ford GT and the Freestar were discontinued *years* ago. The Ford Five Hundred and the Ford Freestyle were both renamed - also a coulpe years ago - to Ford Taurus and Ford Taurus X, respectively.

Jul 07 09:09 AM

[whidbey:]

"After introducing Ford Fiesta in China, Ford plans to introduce it in Europe and other markets by 2010. These introductions should go a long way in strengthening Ford's position."

Love the Fiesta it is great as a ski car and very durable, but only Fools would expect China and India to afford the car. Look at the local prices; it is a god awful mismatch with local incomes for a mass market car. This is not a good sign since Ford management knows better. It is happy talk and a sell on Ford.

Jul 07 07:05 PM

[Jobu37:]

So Zacks is rating Ford a hold based on information full of enough errors that it makes perfect sense as to why they missed the boat on Ford when it was selling at $2.00 and told everyone to bail out of it. FYI the Fiesta was launched in Europe first and then China. It has been the hottest model in Europe all year. Hence the reason, along with the Ford Ka, that Ford has picked up 2+ points of European marketshare in 2009.

If the GT, Freestyle, Five Hundred and Freestar support a Ford rating of hold I wonder what the new Taurus, new Mustang, new Fusion, and upcoming new to America Fiesta and Focus would cause one to rate Ford. Perhaps a buy with a target price above $15 a year from now?

Did the idiots at Zacks draw straws to determine who gets to write an opinion on Ford? Obviously whoever was chosen used data from 3 years ago for the basis of their analysis and had no prior knowledge about the company.

If this is how much work these idiots put into any of their ratings on stocks I feel confident that their advice is about as accurate as throwing darts at the Wall Street Journal from across the room to pick your stocks.

Zacks = fail.

Jul 08 07:29 AM