I have been bullish on Ford since GM and Chrysler got bailed out by the government. From a pure company fundamentals perspective I stand correct, however from a share price perspective it’s a mixed bag and that’s the topic for this article. The company has produced outstanding sales numbers compared to previous years. It has two highly anticipated cars coming to North America in the next year the European Fiesta and Focus. When one compares the existing North American Focus and the UK version there is no comparison; having driven both all I can say is that the UK version should sway a lot of hatchback and hot-hatch buyers over to the Focus. The company has had great success with its Sync system, increasing the number of vehicles sold with the system installed. It is also well on its way to meeting new emission guidelines even with its trucks (which have been very popular even globally). Ford has introduced a technology similar to Fiat and Alfa’s ‘Multiair’ technology which allows the engine to produce more peak power and higher efficiency numbers, thus allowing engineers to put smaller blocks in trucks and vans. The company has made a real commitment to renewable energy as well. Ford announced that it will be installing a 500 kilowatt solar power collection system for its Detroit assembly plant. It will save Ford $160,000 per year in electricity costs; however more importantly it will be the largest solar facility in Michigan and will give the company vital experience with solar power.
If this is all true then why did the stock dip into the $9 range? There are several reasons I believe for this happening. First and foremost the stock receives heavy volume and one can often observes spikes around macroeconomic news. It would appear that over the past 6 months the stock has deviated from the fundamentals coming from the company and stock movements have been more based on expectations for economic recovery. What will most likely be the critical success factor for the stock will be if Ford can continue to show that it can improve its numbers and performance regardless if the economy remains soft. In the short term there will obviously some resistance to the stock breaking out above $14 as the stock peaked in April at $14.46 and fell until June.
There is a lot of confidence inspiring news such as Bill Ford being awarded back dated salary from 2008, on the basis of the company getting back on its feet. Ford made $2.7 billion last year and $4.7 billion in the first half of this year, its most profitable first half in more than a decade. Although these figures cannot compare to the company’s glory days, what is more important is that the figures are improving substantially.
Ford received another debt rating upgrade from Fitch on August 6th to BB-. This comes after a whole string debt rating upgrades started in March this year led by Moodys. Ford has made it known that it wants to get back its investment grade rating by late 2011 or 2012. The company has already retired $7 billion in debt saving $470 million in interest.
Ford seems to be doing everything right, improving its products, simplifying its business, focusing on the environment, and improving its Balance Sheet however will it be enough to lure investors back into US auto?