Ford Motor Company (NYSE:F) Looks towards Global Expansion despite Frequent Product Recalls

0
1127

Ford Motor Company (NYSE:F) has lately been facing headwinds with its business in Europe and North America. Additionally, the company has had to deal with a series of product recalls and rising structural expenditures. However, Ford still managed to report a growth in revenues and an EPS that was in line with analyst estimates, for 3Q2015. This indicates an improving financial position for the company, but with the risks of a loss in business. Additionally, the company has made plans for global expansion and strategic product launches.

Business Highlights

Ford has a total of 16 products lined up for launch this year. This move is expected to provide a boost to pre-tax profit, which is estimated to be around $9 billion by the end of the year. This figure stood at $6.3 billion in 2014. A similar trend is expected to be observed in operating cash flow, automotive revenues and operating margins. However, the main highlight of the 3Q2015 was the update from Ford about its losses in South America and Europe.

The company stated that it expects these losses to be lower than the preceding year. Added to this, Ford anticipates a surge in earnings from Asia-Pacific and Middle-East. Furthermore, the company also predicts a 40% growth in the Middle-East and African markets, by 2020. Ford believes that it can take advantage of this growth and surpass the earnings growth of the industry.

Ford has also planned to invest $1.8 billion, over the next 5-years for research and development in China. Added to this, the company has decided to introduce a series of hybrid vehicles over the next year, to gain access to a larger part of the market. Ford is also expanding its operations in Russia and is expected to increase the capacity of its Ford Sollers facility to 200,000 engines annually. Similar steps would be undertaken in Nigeria and India. However, what really makes these steps effective is the market research that Ford has performed in these regions.

Investor Takeaway

In its pursuit to expand operations, Ford has not neglected the investors. The company has started focusing on capital deployment, in order to boost shareholder value. It is expected that Ford will continue its tradition of hiking the dividend, during the first quarter every year. In 1Q2015, the dividend was hiked by 20%, to its current value of $0.15.

Potential Risks

However, it is important to note that Ford has not always been able to meet its expected outcomes. The company had previously anticipated that restructuring initiatives would make the European operations profitable, during 2015, but that has not been the case so far. Fortunately, these initiatives did help the company reduce those losses. Additionally, it should also be noted here that the EU is suffering from weak economic growth. The problem in Europe mainly lies in the demand for Ford products, which do not seem to be improving anytime soon. A similar situation has been persisting in South America.

Ford’s initiatives to replace older models with new ones have also cost the company in the last 2-years. It is expected that this would also be the case in 2015. However, this would mean an increased share of the market in the coming years. This move has also resulted in a number of product recalls, mainly to fix safety issues. Unfortunately, this reflects poorly on the brand and has altogether resulted in a loss of control over the market.

Conclusion

Ford is trying to expand globally, in a sustainable and more efficient way. The company is using market research and delivering the right kind of products to regional markets. In the long-term this strategy would prove to be beneficial for the company. However, Ford Motor Company (NYSE:F) has to start working on the quality of its products and reduce the number of recalls, than has been the case lately. If the recall problem continues, the company would face a further decline in its market share.