Domestic and International Fire Lights Ford's Ignition

NEW YORK (TheStreet) -- In recent memory, Ford (F) might be best remembered as the only one of the Big Three to refuse government aid and stave off bankruptcy in 2007-08.

Several years later, its shares rallied -- after management righted the ship under CEO Alan Mulally. As often times is the case, the stock got ahead of itself and after briefly touching $18 in January 2011, it tanked below $9 due to severe European losses.

Management has now gotten its act together again and cleaned up Ford's European operations. It seems like everything is finally starting to "click," at just the right time with domestic and international operations. 

European losses continue to dwindle while China has exploded as a huge growth opportunity for Ford. 

The U.S. automaker originally made inroads to China in 1997, but largely ignored the country as strong U.S. sales continued to absorb most of the attention. Before long, it had fallen behind European automakers and General Motors (GM) -- the latter of which is still much more successful in China than its Michigan counterpart. 

For the next 14 years, news of Ford in China was largely unimportant. The company allowed its competitors to cement a commanding lead in the region. In 2012, however, the tone began to drastically change

Mulally's focus on China was that it would be Ford's next great growth opportunity. By sinking over $5 billion into factory builds and assembly plants, the company tripled its third-quarter profit in the Asia Pacific/Africa business segment from last year.  

Investment in the build-up of five new plants wills double Ford's production capacity to 1.7 million units by 2015. The expansion will be necessary to help satisfy the 30 million vehicle sales estimated for the country in 2020 -- more than a 50% increase from 2012. That's nearly double the expectation of the 17 million units for the U.S. in 2020. 

Ford now hopes to have 5% of the Chinese market share by the end of 2013, besting the 3.2% share it held at the end of 2012 and the 2.5% share at the end of 2011.

China boasts plenty opportunity as the enormous population of roughly 1.35 billion begins to prosper from the country's strong growth and increasing wealth effect. Consider that for every 1,000 American citizens, about 800 have their own vehicle. Now compare this to China's 58 vehicle owners per 1,000 people and the growth potential becomes rather eye-opening.  Ford's year-to-date sales in China tallied in at 674,849, up a whopping 51% from the same period last year. Also, the company's imported car sales are up 254% in the first three quarters of 2013, compared to 2012's first three quarters. While China's attributions to the bottom line are small right now, over time it will become a much bigger contributor as Ford gains market share and increases production. 

Turning to Europe, the region has finally exited its recessionary status, and even countries like Spain, one of the worst economies, has ended its recession skid. 

As the continent rebounds, so does Ford, which saw its losses cut in half to $228 million from the third quarter of 2012. Mulally's goal to be at break-even operation in Europe near mid-decade was trumped by CFO Bob Shanks, who said, "I think we can turn a profit -- not just break even -- by 2015." As the company goes from losses to break even, and break even to profits, the share price will also move up. While the pieces are being put in place for consistent success on the international front, the big risk all lies within the hands of the global economy. If the setback is small, then the automaker will likely muddle along until economic activity regains momentum. But, if China slows, Europe falls back into a recession, and U.S. GDP flatlines, then investors might as well hit the exits because Ford could be set back for years. Of course, this could be said for many, if not most companies too. 

Fortunately though, the global recovery has been moving slowly and steadily in what appears to be the right direction. Postponing any economic collapse, Ford should be a great intermediate-term, and an even better long-term, investment.

-- Written by Bret Kenwell in Petoskey, Mich.

Follow @BretKenwell


Bret Kenwell currently writes, blogs and also contributes to Robert Weinstein's Weekly Options Newsletter. Focuses on short-to-intermediate-term trading opportunities that can be exposed via options. He prefers to use debit trades on momentum setups and credit trades on support/resistance setups. He also focuses on building long-term wealth by searching for consistent, quality dividend paying companies and long-term growth companies. He considers himself the surfer, not the wave, in relation to the market and himself. He has no allegiance to either the bull side or the bear side.

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