Can This U.S. Automaker Turn Green into Green?
Douglas is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
With oil prices remaining high and the global economy still on shaky ground, consumers continue to look for ways to keep their costs down. It is this motivation that has ended the American SUV trend and made hybrids a popular option for an increasing number of car buyers. Coming off a record quarter, driven largely by strong North American performance, Ford (NYSE: F) is betting that its new C-Max Hybrid SE will help the company capture a significant slice of this market segment. Based on the strength of the company’s overall position and the attractive prospects offered by this new model, Ford is a buy for your core portfolio at current levels.
A Record Quarter
Last week, Ford reported its best-ever third quarter, largely driven by the strength of its North American segment, which made a pre-tax profit of $2.3 billion on a 12% operating margin. Net income for the quarter was $1.6 billion, or $0.40 per share. CEO Alan Mulally said “While we are facing near-term challenges in Europe, we are fully committed to transforming our business in Europe by moving decisively to match production to demand, improve revenue through new products and a stronger brand, improve our cost efficiencies and take advantage of opportunities to profitably grow our business.”
Despite attempts to avoid the move, Ford will close a portion of its European operations. The move will cost $1.1 billion but will eliminate 4300 jobs and save the company an estimated $730 million on an annual basis. While the local governments have attempted to convince the company to delay the closures, European demand has fallen sharply and the plants are already operating at or below 50% capacity. Mr. Mulally has shown his willingness to make hard choices that ultimately benefit the company; this is one of the reasons Ford was the only major U.S. automaker to avoid needing bailout help from Washington.
The Hybrid Market
As we all know, the U.S. hybrid market has long been dominated by the Toyota (NYSE: TM) Prius family. Thus far this year, nearly 325,000 hybrids have been sold in the U.S. as compared to just shy of 190,000 for the same period a year ago. While the hybrid version of the Ford Focus makes the list of hybrids sold this year, it does not rank highly. Generally speaking, the data suggests that consumers are more likely to buy models that are specifically designed as hybrids rather than those with hybrid versions. This may be attributable to the desire of hybrid owners to receive recognition of their green choice – an easier task if neighbors and friends see an instantly recognizable hybrid.
General Motors (NYSE: GM) has tried to capture an important part of the market with the long anticipated Chevy Volt, but the vehicle has faced very mixed reviews. The all-electric mode has limited range and still faces competition from a member of the Prius family and the Nissan Leaf. Overall, the C-Max Hybrid is positioned to be the first real competition the Prius has seen.
If Ford is to continue its positive trajectory of growth and increasing market share, it will need to quickly gain traction in the hybrid market. To this end, the company has priced its offering just below the price of the least expensive member of the Prius Family – the C-Max stickers at $25,200 and the Prius V stickers at $26,550. While the Prius V is the least robust of the Toyotas, the C-Max offers more horsepower and better fuel economy at its lower price. Ford built the C-Max to compete and shareholders should expect it to do just that.
Given Ford’s strong overall position and its new entry into the green end of the car market, the stock is a buy at current levels. Management continues to demonstrate its skill at making tough but needed decisions to guide the company towards success. It will be important to track the market’s reaction to the new vehicle, but Ford looks to be very well positioned.
Drive Home With Additional Information
Ford has been performing incredibly well as a company over the past few years -- it's making good vehicles, is consistently profitable, recently reinstated its dividend, and has done a remarkable job paying down its debt. But Ford’s stock seems stuck in neutral. Does this create an incredible buying opportunity, or are there hidden risks with the stock that investors need to know about? To answer that, one of The Motley Fool’s top equity analysts has compiled a premium research report with in-depth analysis on whether Ford is a buy right now, and why. Simply click here to get instant access to this premium report.
Mr. Ehrman has no positions in the stocks mentioned above. The Motley Fool owns shares of Ford. Motley Fool newsletter services recommend Ford and General Motors Company. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.If you have questions about this post or the Fool’s blog network, click here for information.