Ford's Week in Review
It was a busy week for Ford (NYS: F) , as the Blue Oval made headlines with new products and continued its ongoing effort to become a green-car leader, a priority for CEO Alan Mulally.
Ford's new chief operating officer, Mark Fields, also garnered some media attention with remarks about where he sees Ford's business (and its margins) heading over the next several quarters.
Let's look at some of Ford's top stories from the past week.
Ford steps up its green-cred efforts
The winter auto-show season is a busy time for nearly all automakers, as new products and concept vehicles are unveiled before an increasingly global audience. Ford is no exception, and even though the first big auto show of the season, in Los Angeles, doesn't kick off until Nov. 28, Ford has already announced a new product.
Following on a wave of positive reviews last week for Ford's new Toyota (NYS: TM) Prius-challenging C-Max line of hybrid wagons, Ford released some photos of its upcoming Transit Connect Wagon, a seven-passenger version of Ford's funky Transit Connect commercial van that's expected to get more than 30 miles per gallon on the highway.
It's the latest shot in Ford's battle to be seen as the leader in fuel economy for the mass market. Ford's press release for the Transit Connect Wagon refers to the company as "the most efficient full-line manufacturer," a big warning shot in the direction of rivals like Toyota and Honda (NYS: HMC) .
Ford's also doing a good job of creating separation between itself and its oldest rival on the green front. While General Motors (NYS: GM) product chief Mary Barra said this week that GM will be stepping up its efforts with EVs and plug-in hybrids, Ford's efforts to bring more and better conventional hybrids (as well as plug-ins) to market are already visible at dealers.
Are Ford's fat margins coming under pressure?
It's no secret that Ford has been making big money in North America in recent quarters. It's also no secret why: A combination of factors -- among them maxed-out factories and strong sales of high-profit pickups -- has led to unprecedented margins in the 12% range.
Analysts have thought for a while that such high margins probably weren't sustainable, but incoming Ford COO Mark Fields still made headlines around the world when he confirmed the obvious this past week.
Speaking at a conference hosted by investment bank Barclays, Fields said that Ford's pricing was already coming under pressure. Increasing inventories will force some of Ford's competitors to start discounting, and a need to respond in kind could cut into profit margins in the U.S. before too long.
Longer term, though, there are other pressures on Ford's margins looming. Ford's F-series pickups are the company's (and America's) best-selling vehicle line. That's unlikely to change, but pickups are likely to represent a somewhat smaller percentage of Ford's total sales by mid-decade, as more folks transition to (more fuel-efficient) cars.
That won't be a problem for Ford, as its cars have been improved dramatically and are plenty good enough to retain those customers and attract new ones. But it will affect margins: Cars are less profitable, per vehicle sold, than pickups.
Margins will drop, but Ford's profits should stay strong
That won't be the end of the world, by any means. Fields said he expects Ford's margins to still be in the 8% to 10% range by mid-decade. That's well above recent historical levels, and way ahead of what competitors like GM are getting now. As new-car sales in the U.S. continue to rise with the ongoing economic recovery, Ford's profits in North America should continue to be very strong.
Meanwhile, as Ford's huge investments in China start to bear fruit, and Ford Europe goes from being a big money-loser to breaking even or turning a profit, the company's global profits -- and margins -- should see big improvements. With luck, that will make Ford's shareholders quite happy over the next few years.
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