Mulally has worked wonders with Ford Motor Company (NYSE:F)’s balance sheet and has made sure not to let its current debt burden of $107.6 billion get out of hand. That total might seem egregiously high, but it also includes loans for its finance arm. Outstanding debt for its automotive business is actually much lower. However, debt was the downfall for Ford rival General Motors Company (NYSE:GM), which required a $49.5 billion bridge loan from the government to sustain its operations while it restructured under bankruptcy. GM has long since paid back its dues to the government in a mixture of cash and stock, but the brand-name damage still lingers on. Ford will need to keep a close eye on its debt levels to make sure it doesn’t repeat GM’s same mistakes.
Finally, alternative-fuel engines — namely electric vehicles such as the Model S produced by Tesla Motors Inc (NASDAQ:TSLA) — could present a growing challenge for Ford’s predominantly gas-powered vehicles. Admittedly, the Model S is in a completely different price bracket and is targeting a wholly different consumer than most of Ford Motor Company (NYSE:F)’s lineup, but it nonetheless represents a growing threat to gasoline-powered engines’ existence. Ford will need to stay vigilant with regard to innovation or risk falling behind newcomers like Tesla.
Source: German Medeot, Flickr.
Why Ford?
The first thing you’ll notice about Ford is that it’s absolutely driving over its competition domestically and in China — the world’s largest auto market. In June, Ford saw sales in the U.S. jump by 13% on the heels of a 24% jump in F-Series pickup sales. By comparison, GM saw its sales rise by less than 7%. Ford has stayed ahead of the curve by constantly freshening up the design of its trucks, while GM went clear from 2006 until the 2014 models before it made significant model changes to the Sierra and Silverado.
China has been an even bigger story for Ford, with sales jumping a ridiculous 44% in June from the previous year. Year to date, sales are up an even more impressive 47%, compared with this time last year. In contrast, Japanese automakers such as Toyota Motor Corporation (ADR) (NYSE:TM) and Honda Motor Co Ltd (ADR) (NYSE:HMC), which gobbled up market share in the U.S. over the past two decades, are now getting a taste of their own medicine in China. Because of country-to-country animosity between citizens in China and Japan, Toyota and Honda have seen year-over-year sales fall in more months than they’ve risen over the past 10 months.
Another big reason to like Ford Motor Company (NYSE:F) is its middle-of-the-road approach to please both power-hungry auto enthusiasts and eco-friendly mpg-seekers with its EcoBoost engines. EcoBoost engines use superchargers than can add power when it’s needed but run on a leaner need for gasoline when that power isn’t needed, improving gas mileage. This year alone will see as many EcoBoost-fueled vehicles sold as in the past three years combined. This engine could singlehandedly keep Ford well ahead of its competitors, including Tesla, for years to come.
Finally, it’s all about Ford’s incredible CEO and his growing shareholder incentives. Mulally has completely transformed Ford from the broken company it was in 2006 into the dominant force it is today. He’s also responsible for doubling Ford’s dividend earlier this year back to its pre-turnaround-era $0.10 quarterly payout. With Ford Motor Company (NYSE:F) yielding 2.4% and valued at just 10 times next year’s earnings, there appears to be plenty of rubber left on these tires.
Stay tuned next week, when I’ll unveil the eighth selection in the Basic Needs Portfolio.
The article Basic Needs Portfolio Selection: Ford Motor originally appeared on Fool.com.
Fool contributor Sean Williams has no material interest in any companies mentioned in this article. You can follow him on CAPS under the screen name TMFUltraLong, track every pick he makes under the screen name TrackUltraLong, and check him out on Twitter, where he goes by the handle @TMFUltraLong.The Motley Fool owns shares of, and recommends, Ford, Intel, MasterCard, Tesla Motors, and Waste Management. It also recommends Chevron and General Motors.
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