3 Reasons You Should Invest in Ford
Ford , the second-largest U.S. automaker, performed extremely well in the first two quarters of 2013, and there are three good reasons to suggest that it can continue this performance over the rest of the year.
1. Significant growth in China
In the second quarter of 2013, Ford credited improving sales and profits to market share gains in all regions, mainly from the Asia Pacific and North America.
Ford has been investing heavily in China to take advantage of enormous opportunities there. Its sales in China have been growing faster than expected, up nearly 50% year to date. CEO Alan Mulally sees China becoming an export hub for Ford, and a long-term growth driver. The country is already the world's largest car market, and it might become the largest premium-car market by 2016.
In the U.S., nearly 800 out of every 1,000 people own cars. But in China, only 58 people out of every 1,000 do, creating a huge opportunity for future auto sales. A survey conducted in China to zoom in on consumer preferences and purchasing habits, showed over 60% of respondents consider buying a car as much a priority as buying an apartment or paying for a child's education. Many analysts have predicted annual auto sales in China will rise to 30 million by 2020.
Ford aims to grow its Chinese market with new cars, new plants, and a new attitude. Its biggest competitor in China is General Motors , which is investing heavily to triple its Chinese sales of Cadillacs by 2015.
Ford similarly plans to double its Chinese market share to 6% by 2015. To achieve that lofty goal, it is launching six new vehicles this year, with plans for nine more in the next two years. Ford plans to spend $5 billion constructing five new plants in China, doubling its Chinese production capacity to 1.7 million vehicles by 2015. The company also plans to expand its dealership network to more than 900 locations in the same time frame.
2. EcoBoost technology
Closer to home, concerns about fuel could also help Ford pull ahead of its rivals.
Fuel prices are estimated to increase between 2% to 4%, which will likely spur demand for fuel-efficient vehicles. That could help Ford's strong emphasis on manufacturing fuel-efficient vehicles, including the Ford Focus ECOnetic and Ford Fiesta, pay off.
Ford has recognized the significance of small, fuel-efficient vehicles, and it's vigorously transitioning into this market. Of particular interest is Ford's EcoBoost technology, which promises fuel efficiency and fewer CO2 emissions.
EcoBoost is already a big success, and it's poised to do even more for the company. Management reported that it has manufactured 2 million EcoBoost engines since the technology launched in 2009. It now offers five EcoBoost engines ranging from 1 to 3.5 liters in size, with more to come.
Surveys suggest that consumers are 50% more likely to purchase a Ford if they are aware of the EcoBoost engine -- the most recognized fuel-efficient engine in North America. Ford announced EcoBoost will be available on more than 90% of its North American nameplates this year, rising to 95% by 2015.
In the Asia-Pacific region, Ford's EcoBoost sales have increased 202% year over year, driven by a 189% rise in China's sales. With this mounting demand, the company plans to launch EcoBoost engines in 20 vehicles in the region by 2015.
3. Strong demand for the F-Series truck
Small cars aren't Ford's only path to success, though. Ford is also America's best-selling commercial brand, and the U.S. housing recovery has enhanced demand for its popular line of pickup trucks. In August, Ford sold more than 71,000 F-series trucks. That's up 22% from a year earlier, and it marks the highest August reading since 2006.
The continued success of the company's pickup trucks will depend on the strength of the housing market. While housing's recovery should continue, no one's certain how quickly it will bounce back. Selling prices of homes are expected to increase 6% in 2013, which shows the housing market still has room to expand. This year, total U.S. pickup truck sales are expected to reach 2 million for the first time since 2007.
Looking forward, Ford has a lot of opportunities in the medium and long term, and the company is well positioned to meet the growing vehicles need in the U.S. and China. The company will get most of its future growth from China and its investments in Asia will surely pay abundant return in the future. In my opinion, Ford is well-positioned to generate a significant return for its investors.
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The article 3 Reasons You Should Invest in Ford originally appeared on Fool.com.Aftab malik has no position in any stocks mentioned. The Motley Fool recommends Ford and General Motors. The Motley Fool owns shares of Ford. 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.
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