It began as a mixed day for the Ford Motor Company (NYSE: F). Although the firm managed to handily beat the fourth quarter earnings expectations by disclosing results earlier today, their glum outlook for 2013 caused investors to retreat. A rather concerning interpretation of the results shows that while North America remains a strong, profitable market for Ford, Ford’s international markets are expected to post another combined loss in 2013. By noon today, shares Ford Motor Co. fell 1.4 percent to $12.96 with 34,933,800 shares traded, one of the most actively traded stocks for the day.
Ford has produced very strong sales growth in Asia, and particularly in China. However, the company is investing heavily to support further growth in Asia, and this has hurt profitability. In the long run this may prove to be the right decision for Ford, but in the short run, it’s a drag on cash and profits at a time when auto sales remain rather timid. The company needs to grow its presence in Asia, in order to reduce its reliance on Europe. Ford’s management has presented a credible plan to turn the European business around by mid-decade, but the worsening industry outlook may delay the return to profitability past 2015. While Ford is cutting capacity, it still needs to increase its European sales just to reach breakeven. In a tough competitive environment, this could be difficult to achieve.
Ford’s growth in China will allow the firm to tap into the world’s largest auto market. However, the required investments to reap those benefits will continue to limit profitability in Asia for the next two years. Moreover, profits will be quite modest when they do arrive. Meanwhile, the European market is in complete disarray with all types of issues ranging from overcapacity, declining sales to an overall challenging economic climate. New growth opportunities are in China, Russia, Brazil, India and other emerging markets which require more differentiation by market and adaptation to local tastes. General Motors (NYSE: GM), the market leader in China sold more than 2.8 million vehicles in China during 2012. Despite these massive unit volumes, GM is on pace to produce equity income of just $1.5 billion for the full year from its Chinese joint ventures. Ford’s 2015 target production is less than half of GM’s current Chinese production, and its profits will be correspondingly smaller.
Ford must continue to outperform in North America to compensate for the sagging profits abroad, or risk slipping back into the dicey territory the firm last saw in 2008.
