Ford Motor Company (F), General Motors Company (GM): Which Automaker Will Drive Your Portfolio?

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Ford Motor Company (NYSE:F)’s recently reported fourth-quarter results turned out to be quite solid, but not all was well with The Blue Oval. Although the company earned $0.31 per share and beat consensus estimates of $0.26, a pessimistic outlook for its European business sent shares down 5%.

Let us take a look what the company has in store for investors and how does it plan to address the European conundrum.

The numbers

Ford Motor Company (F)Ford revenue grew 1.9% from last year to $36.5 billion in the quarter, ahead of analyst estimates of $33.17 billion. Net income for the quarter was $1.6 billion, $565 million higher than last year excluding the effect of deferred tax assets. Both the top line and bottom line numbers are strong, but slightly lower in comparison to FY11 as Europe’s losses have increased further this year.

How bad is Europe?

On the face of it, Europe has been bad for Ford. In the last quarter the company lost $732 million compared to a loss of $190 million in the same period last year. In 2012, Ford has lost $1.75 billion while the expected loss was around $1.5 billion. The company projects that the losses will further swell to $2 billion in 2013.

Europe’s impact on the company’s profit is entirely because of macroeconomic factors that are not controllable. So I believe it’s better to focus on what Ford is doing to overhaul its operations in Europe. It has closed down three factories in Europe to lower costs and make each unit it sells in that region profitable. The company can further add new vehicles to its current offerings in Europe at a lower cost, which should eventually help its bottom line irrespective of the economic condition of the continent.

The silver lining

Ford’s conditions in Europe should be better as management’s turnaround strategies should deliver, but it will take time. Now let us focus on the company’s growth and expansion in another region. The company has grown in Russia as sales surged 11% in 2012, selling 130,815 units during the year. It recently started producing Kuga and Transit in Russia through its joint venture with Ford Sollers. The response for both the cars has been very good and should further help the company improve its revenue from the region.

Ford has ambitious expansion plans in Asia, especially China. At the moment, the most populated country in the world is not very profitable, not even to the market leader General Motors Company (NYSE:GM). In 2012, Ford sold 626,616 vehicles while its rival GM, along with its partners, sold 2,838,128 units. Investors might feel Ford is too late in entering the Chinese market but it is not so. The company’s sales in 2012 increased 12% in China and the trend increased more towards the end of the year with sales in December surging by 43%.

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