Ford Motor Co. (F) has posted a significant increase in its market share, in the month of June. Increase in market share is derived from its redesigned core Ford division products and strong demand for new products. Ford is in partnership with General Motors Company (GM) to develop a new line of transmission, which will save millions of dollars for Ford. Therefore, I am bullish on Ford Motor.
Ford Motor is the second-largest U.S. based automaker. It manufactures and sells automobiles and commercial vehicles in six continents with 65 plants operations worldwide. The company operates with two brand names: Ford and Lincoln. Let's look at some of the positive catalysts that I believe will drive Ford's future performance.
Improving market share in Europe
A strong demand for new products helped Ford increase its market share in Europe. Ford's total market share in its 19 traditional European markets grew to 8.3% in May, up 0.3% year over year. In May, Ford sold a total of 100,000 vehicles in Europe. The sales volume was down by 2.2%, which was still better than the industry decline of 6.2%versus May last year. Ford is the second largest vehicle manufacturer in the U.S. It is growing faster than its competitors in the U.S. and its shares reached 16.2% in May, beating all of its competitors.
June strength in China and U.S.
The month of June saw unprecedented strength in both Chinese and American auto markets, which I believe will benefit both Ford Motors and its competitors.
In June, Ford sales in the Chinese market, went up 44% from a year earlier, driven by increased demand for the company's redesigned Focus compact car. In the month of June, Ford sold 75,254 vehicles in China, up 44%. In the first six months of 2013, it sold 407,721 vehicles, up 47% year over year. Similarly, General Motors demonstrated a 10.6% increase in its sales in China over the prior year.
In the month of June, auto sales in the U.S. increased which is in the benefit of Ford Motor, and its competitors General Motors and Toyota Motor Corporation (TM). This June was best for Ford Motor since 2006, as it reported stronger-than-expected sales with a rise of 13.4% to 235,643 vehicles, while Wall street had estimated a 11% gain. General Motors' sales have risen 6.5% to 264,843 units, 4.5% greater than what analysts were estimating, while Toyota Motor reported an increase of 10% to 195,235 vehicles over the same time frame.
Ford posted strong profits in the first quarter based on the strength of its North American sales. In the first quarter, Ford posted a pre-tax profit of $2.1 billion, or 41 cents per share, a decrease of $147 million from a year. Net income was $1.6 billion, or 40 cents per share, up from $1.4 billion a year ago while the total revenue reached $35.8 billion from $32.4 billion. The first quarter revenue in North America improved 20% from the same period a year ago.
The company incurs too much cost to engineer a vehicle which is a negative point, but it is going to restructure its operations to reduce the cost. This higher cost pinched its net margin in North America, which was 11% in the first quarter, an overall high for the company, but lower than the expectation of analysts. As a result of higher cost and downturn in economy, Ford lost $462 million in Europe and lost $128 million due to unfavorable exchange rates. The company expects a loss of $2 billion in Europe this year.
Strategic alliances with competitors
Looking at the competition, General Motors is the fiercest rivals of Ford. General Motors has gone through bankruptcy while Ford has managed to survive in the recent recession.
In April, both rivals announced to work together to develop a new line of transmissions. Both rivals are partnering on the automatic front- and rear-wheel-drive gearboxes. The companies will jointly develop a nine- and ten- speed automatic transmissions for use in cars, SUVs and pickups. The aim of this development is to increase fuel economy to meet the U.S. government's fuel efficiency standards which will get stricter in the coming years. Both companies hope to save millions of dollars from this joint development but they have not provided estimates on exactly how much they will save.
Besides this, Ford is also working with Toyota Motor Corporation in order to develop a gas-electric hybrid fuel system for pickup trucks and sport utility vehicles. Toyota is also a strong competitor of Ford especially in the hybrid vehicle market. Toyota is the market leader in hybrid vehicle sales, but its market share of hybrid vehicles has fallen from 75% to 68% because Ford is appearing as its strongest rival. Ford has a total hybrid car market share of 15.4%.
I believe Increasing market share in Europe, the unprecedented strength within the U.S. and Chinese markets during the month of June, strong fundamentals and its strategic alliances with competitors will lead Ford Motors will maintain its current market position in the future. China is the fastest growing market which will further benefit Ford. It is currently restricting its operations to reduce the operating cost which will benefit Ford in the long-term.