Ford Motor (F), the country’s second-biggest auto maker, was able to avoid a government bailout during the financial crisis, unlike its two U.S.-based competitors General Motors (GM) and Chrysler, thanks to conservative financial management.
It also started earlier than its rivals on making quality cars that Americans want to pay for and drive. Now the company is enjoying the benefits of improved quality and performance for its cars. That makes it a stock to consider.
Ford had its best first quarter this year since 1998. Profit surged 22 percent to $2.55 billion from $2.09 billion a year earlier. Revenue gained 18 percent to $33.1 billion, exceeding estimates.
The improved quality of its cars, such as the Fiesta and Focus, allowed the company to raise prices and still attract a substantial number of buyers. Higher car prices accounted for $900 million, or 32 percent, of Ford’s first-quarter pretax profit.
While its market share dropped in North America — as well as in South America and Europe — profit per vehicle jumped more than 30 percent to more than $2,700 in North America. Ford's profit margin rose an average of $250 per vehicle in North America too, according to Edmunds.com.
The road ahead
Ford said that higher commodity prices as well as higher expenses for new-product development, engineering, manufacturing, and advertising will limit earnings gains for the rest of this year. But it still expects full-year profit to exceed last year’s total of $6.56 billion.
Standard & Poor’s analyst Efraim Levy has a four-star buy rating on Ford shares. “We think Ford's CEO (Alan Mulally) has made a noticeable difference in the company's improvement efforts,” he wrote.
“We have become more confident in Ford's ability to bring successful vehicles to market . . . and we see progress in bolstering the company's image.”
Quicker introduction of new products, more efficient capacity utilization and cost-cutting initiatives will boost profit margins, though higher commodity prices will limit the gains, Levy says.
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