Ford Motor Company (F)

NetscribeTransp (< 20) Submitted: 3/27/07 8:43 AM : Start Price: $7.88 F Score: 32.16

Ford Motor, the world’s third largest auto manufacturer, is primarily involved in the business of producing and financing passenger cars and light trucks. The company generates gross annual revenue to the tune of over $150 billion, with wide range of high end brands that include Jaguar, Land Rover, Lincoln, and Mercury. The company has a diversified market base; however it’s the domestic north American market still contributes the major chunk of over 45% of the over all revenues. Ford’s operating revenues are segregated into two key segments: Automotive Sales; and Financial Services. The Automotive Sales segment provides about 90% of the total inflows, of which sale of trucks and sports utility vehicles generate the major contribution.


In 2006 Ford’s performance has been anything but encouraging; with revenues falling and the company observing a staggering net loss of over $12 billion. The revenue loss can be attributed to break neck competition, especially in the U.S. automotive market, where every major manufacturer has offerings in almost all the segments. The drop of 2.6% in the U.S vehicle sales further added to company’s revenue decline, while the low margin sales to rental car companies and high fixed cost structure resulted in such a gigantic loss.


The company has taken some drastic measures to make the organization more lean and sturdy to face the competitive environment, which includes the sale of Aston Martin division and major downsizing that is currently going on. However, excess capacity and difficult union contracts continue to provide the hurdle. Looking ahead in 2007, the ever volatile fuel prices will continue to shift the demand into more fuel efficient vehicles, which will continue to hurt sales of trucks and sports utility vehicles. Moreover, considering the slower pace of the U.S. economy, and the ongoing mark downs and incentive driven sales to rental agencies, will have a negative impact on the margins and probably on future sales, thus making Ford a very speculative investment. It will be better for a value based investor to stay away from the stock at this point of time, rather than hoping for a turnaround soon.

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