In a recent presentation to the Charlotte Economics Club, Ford economist Ellen Hughes-Cromwick and analyst George Pipas listed global societal and economic trends that would appear to benefit the auto industry, as well as their employer.
Obviously, global auto sales are rising this year, but the increase could be more than expected. In the presentation, Hughes-Cromwick said Ford anticipates global growth of 3% to 4%, but "it could surprise on the upside, based on what we see in most markets, with the exception of Europe."
In a recent report, J.D. Power forecast that global sales should
rise 6% this year to set a new record, so perhaps Ford is just being conservative.
Ford shares rose 65% in 2010 after rising 334% in 2009. But they tumbled 13.4% to $16.27 after Ford
missed guidance when it reported fourth-quarter results on Jan. 28, and they have not recovered.
Here are five trends that should one day lead the share price higher.
Underlying the global growth trends are the high numbers of new drivers who are reaching the driving age and attaining income levels between $5,000 and $15,000 annually. By 2020, the world will have 5.7 billion drivers, up from five billion in 2009.
Moreover, the world has plenty of room for more cars. In 2008, the U.S. had 1,022 vehicles per thousand drivers. But India had 25, China had 48 and Brazil had 192.
Global Growth Outside BRIC Countries
Of course growth in Brazil, Russia, India and China is a tired story -- it's also not the whole story. "Look at other markets," said Hughes-Cromwick. "This is what is under the radar screen." Young drivers are entering the market in droves in Mexico, Turkey, Egypt, Thailand, South Africa, Argentina and Romania." In general, income in these developing countries is also growing.
The percentage of the population between the ages of 15 and 34 is 39% in South Africa, compared with 28% in the U.S., 32% in China and 34% in Brazil. The percentage is 36% in Egypt, 35% in Turkey and Mexico and 32% in Argentina and Thailand.
Sub-prime auto buyers are gradually returning to the market, after being shut out due to the shutdown of the credit markets. Hughes-Cromwick said the number of sub-prime buyers reached around one million in 2007. Two years later, in 2009, it had slid to about 300,000. In 2010, it was about 400,000. In January 2011, the seasonally adjusted annual rate was 511,000 subprime buyers.
This trend is regularly cited on Ford and
monthly sales calls as a reason why auto sales will pick up. Currently, the average age of light vehicles on the road is 10.6 years, up from 8.5 years in 2008. That is generally viewed as a point where the need for replacement vehicles is overwhelming.
Ford's Market Share Growth
The years 2009-2010 marked the first time since 1992-1993 that Ford gained market share two years in a row. That share is now 16.4%, up from 15.3% in 2009 and 14.2% in 2008. Moreover, Ford still has plenty of room to grow: its market share in 2000 was 23.6%.
One way the company has sought to stimulate growth is by
moving into the small car market. In California, where
small car sales dominate, Ford is growing. Speaking in Charlotte, Pipas noted that Los Angeles has recently been the top market for the Fiesta and reiterated Ford's view of California as "an emerging market for us."
So those are the positive trends. It is worth noting two factors that are not so positive.
First, China is now the world's biggest auto market and Ford is a very small player over there. The company is pouring resources into China and making progress, but it is far behind competitors, who are also committed to China growth. According to Global Insight, GM has a 14% share in China, making it the country's largest automaker, while Ford ranks thirteenth with a 3.5% share.
Secondly, commodity prices are rising. They were among the principal reasons for Ford's fourth-quarter earning miss, and they have continued. Not only do they make cars more costly, but also, rising oil prices can slow economic growth around the world, as Tuesday's market drop made clear. Hughes-Cromwick noted that steel prices are above $800 a ton in the spot market, doubling the price of a few months ago. At the same time, "it's not like we're going out and buying spot," she said. Ford hedges commodity prices and locks in favorable contracts. Still, she said, "we're going to be in demand-supply push for quite a while."
-- Written by Ted Reed in Charlotte
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