Ford (NYSE:F) is currently making news in the automobile industry due to a number of unexpected changes in policy. Ever since the recession of 2008, Ford has shown a willingness to experiment and fit in with the global economy. Ford has seen its competitive advantages expand as it sheds its weaker brands and reallocates capital to higher margin growth markets abroad.
Ford has been drawing up new plans and market policies ever since Alan Mulally took over. Most of his work has been in an effort to prevent bankruptcy and avoid bailout, in which he has succeeded. Currently, much of Ford's investment strategy is a direct impact of Mulally's vision of the future. As a big believer in streamlined operations and stabilization of assets, the Mulally is leading Ford towards new ground.
In looking at the company's record over the past four years, I have found two areas of focus where Ford has been investing time and energy. The first happens to be in the streamlining of assets. Ford has dropped many of the brand names it once had controlling shares in. These brands weakened the company and held up required capital. By retaining control of only the Ford and Lincoln models, the company no longer needs to push funds into diversification and management.
Ford has also reduced the presence it once had in the European market by selling Jaguar and Land Rover to Tata Motors (NYSE:TTM). Keeping in mind the current condition of the Euro, moving away from the lopsided economy has been a wise move. It also keeps the Indian automakers Tata Motors occupied with their new assets, while Ford can work the Indian market more aggressively than it has in the past.
Exploring new markets is the second area that has been focused upon. Ford is targeting the East as a potential new source of profit. Investments made in China have grown, and are being used for expansion of infrastructure for the company. Even with the sale of most assets, Ford chose to keep a foothold in Mazda from Japan, in order to keep tabs on Thailand as a market. Finally, pursuing an aggressive strategy in India further underlines Ford's expansion into foreign lands.
Judging from the sale and investment patterns, I feel that Ford is doing quite well in keeping up with competitors Honda (NYSE:HMC) and Toyota (NYSE:TM), which are the main competitors in the Asian markets. A strong base in China would mean that Ford would be able to decrease the dominance of the two companies to an extent and take over a substantial part of the market.
Reorganization of Assets
I feel that Ford has been able to dust itself off and move on further in the global market due to timely assessment of varied assets. The first taken was to back away from the European markets. Phasing the withdrawal, Ford has not been affected as much by the problems facing the Euro. Rival General Motors (NYSE:GM) has certainly not been so fortunate, with much of their operations currently mired in loss within Europe. In case the Euro does fall, then Ford is protected due to its reliance on the North American sales at the moment.
In my opinion, Ford has played its cards wisely by moving into China. As GM continues to face economic trouble, the hold it has in the East weakens. In a bid to secure the required standing, it has put out an investment of $5 billion in China. Close to $760 million of this will be spent in setting up infrastructure, such as a factory meant to be built in Eastern China. This is expected to double the current production capacity. With growing population and the ability to export to nearby countries at lowered costs, China can provide the platform Ford currently needs to become one of the most respected global car brands.
Furthermore, the decision to push automobile loans for the benefit of citizens is a useful strategy to ensure that Ford does not lose out the middle class. Ford has also made an investment in alliance with Mazda in Thailand. The $27 million cash infusion is meant to increase production capacity for the plants situated there and earn more profits from the market. Other than these, Ford currently does not plan to create more strategic alliances within the market in a bid to safeguard its finances.
To fully understand how Ford has fared in the past two years and the future outlook, there is some statistical data that must be considered. Ford reported an increase in total sale of vehicles by 7%, with an adjusted price hike of $1,500. A bid to move into the green technology sector for automobiles may give them an edge considering rises fuel prices in the US and around the world. I feel Ford can once again become a profitable venture. Looking at the total revenue growth of 12.7% in 2011 is a good indication of what is to come.
Furthermore, the EBIT jumped 5.6% and the Net Income rose by 208%. Substantial gains such as these have been taken into account when Alan Mulally released his growth plan for Ford. By the year 2016, Ford hopes to achieve an increase in sales to the tune of 5.3 million to 8 million globally. This should also allow the operating margins to reach up to 8 to 10%.
Ford is moving into a phase of automobile production. It has been declared as one of the best car brands for 2012. In my opinion, this holds the key towards making the company a successful global leader in automobile sales. The new ethos within the company has it focusing on production of in-house models through a variety of platforms in various countries. Reducing exposure to loss allows higher capital investment into required Research & Development to enter newer markets.
I feel that over the next three years, Ford may experience slight fluctuations in its stock, but there is little to worry about in the bigger picture. With news of Ford gaining back the investment grade of Baa3 which it had lost, investors can be satisfied in knowing their money is in good hands.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.