Will Ford's European Plan Work?

| About: Ford Motor (F)

After having its great North American results offset by its poor European results, Ford (NYSE:F) finally decided to turn things around in the continent. The company's turnaround plan in Europe is very similar to its turnaround plan implemented in 2008-2009 in North America. Obviously, company shareholders are hoping that the results will be similar too.

The company's CEO, Alan Mulally, was accompanied by Ford's executives when he presented the new Ford cars to 2,500 car dealers in Europe on Thursday. The company plans to add 15 new car models in its European inventory. These cars will be smaller and more fuel efficient than their counterparts in North America, as the gas prices are much higher in Europe and the high gas prices limit the variety of cars Europeans can purchase without hurting their budget. One of Ford's more exciting models will be the EcoSport, a small size SUV.

This is a very interesting and very risky decision for Ford. While the company is losing a lot of money in Europe due to weak demand, it is increasing its offerings in the continent rather than slowing down. While this decision will face a lot of skepticism, it is important to note that the plan worked in North America after the Great Recession of 2008. Rather than sitting around and waiting for European economy to turn around, Ford is proactively chasing consumers in the continent in order to capture their attention with a number of new cars. Alan Mulally sees the challenges being faced in Europe, and he recognizes these challenges as opportunities. I agree with Mr. Mulally that any challenge can turn into an opportunity as long as the right strategy is applied to battle the challenge.

Ford's competitors are slowing down their production and new model launches in Europe due to the slowing demand. This should also help Ford along the way as it will be one of the very few companies to introduce new models in the continent in the short term. When every other car company in Europe is fearful, Ford is attacking the problem by going at it. While this is a big risk, history has always rewarded risk takers. Those who made the difficult but correct decisions always prevailed those that chose the easy way. After reading "American Icon: Alan Mulally and the Fight to Save Ford Motor Company," which I reviewed at Seeking Alpha recently, I have more faith in the management of this company. On a side note, I believe that all Ford investors should read this book in order to restore their faith in the company.

Some of these new cars will be produced in Europe and some will be exported to Europe from elsewhere. Some of the named locations for car production are Brazil, China, India and Thailand. Producing the cars in Europe would save the company money in shipping costs; however, producing the cars outside of Europe will save the company cash in production costs. Besides, if the cars are produced outside of Europe and the demand in the continent isn't very high, the cars could always be moved to another location where there is demand.

The company also wants to redesign one of its signature brands, the Ford Mustang. The car will have a "more European look" and it will be exported to European countries starting 2014. Mustang has been one of the most popular car brands in the US since 1960s. The car could see a lot of demand in European countries where speed limit is much higher than the one in the US.

I believe that once Ford works out its European issues, the company will be worth at least twice what it is worth today. This may be Ford's great chance to prove to the world once again that it can successfully plan and implement a great turnaround story. I think that Ford's European plan will be successful. As the company makes some structural changes to cut costs in the continent and offers a bigger and better variety of car models there, the company should perform much better. In the short term, even if Ford Europe broke-even that would be still great. In 2012, this will not be achieved but it might be achieved in 2013 depending on the state of the economy.

I am long Ford and I don't plan on changing this anytime soon. Ford is a great investment with solid fundamentals, strong future and impressive management. I expect the company to increase its dividend rate and buy back stock in the future once the issues in Europe are more under control.

Disclosure: I am long F. 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.