Thanks to the seemingly constant developments in technology, car designers and manufacturers have to be always on their toes in order to keep up with the latest changes in the industry. Everything about a car is subject to change, and quickly—whether it's the materials used in making a car, the processes used to build a car, the way cars are powered or the facilities they are fitted with, nothing stays the same for long. As a result, there is fierce competition within the car industry, with companies constantly trying to come up with something new before their rivals, and world-famous companies like Ford Motor Company (NYSE:F) are no exception. So how is Ford coping with the tough competition of the modern world? And how does its performance compare to that of its competitors?
The company's price-to-earnings ratio has enjoyed a considerable turnaround in fortunes in the past 12 months—rocketing to 2.3 from 9.3 this time last year. Surprisingly, the picture is similarly prosperous over at General Motors Company (NYSE:GM) with price-to-earnings ratio of 6.48 over the past 12 months. However, the story is not the same across the board. By contrast, some companies, such as Honda Motor Co., Ltd. (NYSE:HMC) has seen its ratio double to 22, compared with 10.7 at the end of April 2011. So, in this mixed market, what is Ford doing to enjoy considerable success in these challenging economic times?
Ford has made the news for all the wrong reasons this year after recalling a large number of its cars. The 2000 Ford Focus has been recalled a shocking 10 times since its introduction, in addition to 2013 Lincoln MKT Limousines, which were built between August 2010 and October 2011, because of various problems from faulty windscreen wipers to defected engines. The continuity of such call-backs has severely damaged Ford's public image as a trustworthy manufacturer, and even knocked consumers' confidence in the company. Unless Ford demonstrates exceptional customer service and professionalism, it may not recover from this issue for a long time. To compound the problem, 2013 Limousines were also expected to be affected, but as they are quite exclusive vehicles, investors don't seem to be too concerned about this one. I think if Ford wants to improve its stock price from its current standing of around $10 to last year's high of over $18, it must concentrate on taking quality control more seriously—no one wants a car manufactured with errors.
However, apart from this (rather significant) manufacturing issue, Ford's presence in the news has been mostly positive. Ford has proved itself a keen innovator in recent news as it announced the development over the next five years of a car with the capability to drive itself in traffic jams. The drivers amongst us know the frustration associated with driving in stop and go traffic, and if Ford successfully developed such a vehicle it would doubtlessly be popular. Currently, prototypes are being tested in the US and Germany, and the company is excited about the new Traffic Jam Assist function it could soon be integrating into its models. I think this clever development could give Ford a long-awaited boost, shifting its share price far past the 15 dollar mark, and perhaps even over 20 if the company successfully distributes the new vehicles worldwide, without letting manufacturing competitors get a hold of the new technology too quickly.
Also good news is the upgrade of Ford's investment rating to BBB-, a dramatic improvement from BB+ that will change perceptions in the city. With profitability for nearly three consecutive years and dividends resuming for investors, this sets out the blossoming company apart from rivals such as Chrysler, which although is not publicly traded, is owned in part by Daimler Ag (OTCPK:DDAIF).
In addition to being at the forefront of satisfying consumer needs, Ford is proving itself to be at the forefront of technical innovation. The company has recently paired up with Dow Chemical Co. (DOW) in order to develop a lightweight carbon fiber material that can be used in the manufacture of its future cars, and that is also more cost effective than current carbon fiber. It not only demonstrates Ford's commitment to its cause of making its vehicles lighter, but also shows vast amount of technology and resources that Ford has at its disposal, reinforcing its position as a market leader.
Another type of technology that Ford has been noted for harnessing recently is the latest mapping platforms - Ford has teamed up with tech giant Nokia to install the Nokia Location Platform into cloud-connected Ford vehicles. Drivers will be free to install a range of map-related applications on the platform, for optimal choice when it comes to navigation. Currently, the Platform is being tested in only select Ford models, but if the integration goes well, we could indeed see it rolled out to all Ford vehicles as standard. If this happened, the relationship between Nokia and Ford would be deepened further and other connectivity and collaboration projects could be a distinct possibility. For the moment, I can only say watch this space. It is too early to say what impact this partnership will have on Ford's stock market price, although the potential for innovation is large.
Overall, while Ford has been making some strong and successful innovation decisions recently, I think that these have unfortunately been overshadowed by the main story in the news about Ford—its recall of hundreds of thousands of cars. Eventually, this will blow over, and if Ford acts quickly and carefully in terms of its relationship with its consumers, it can avoid the recalls doing too much damage. If Ford continues to develop, innovate and market in the way it is doing right now, I think we can expect that stock market figures will start to dramatically improve into the next year.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.