Europe will improve
Europe may be the most important opportunity for Ford going forward. The region has been a big drag on profitability for Ford and most of its competitors. Ford expects to lose $2 billion in Europe this year due to low sales and the impact of accelerated depreciation for factories that are closing. If the company can just eliminate those losses, it could provide another leg up for Ford stock.
Fortunately, Ford has adopted a fairly aggressive restructuring plan for Europe, which involves closing two factories this year and a third in 2014. This will save hundreds of millions of dollars in annual overhead. Furthermore, other automakers are also making tough decisions and cutting capacity in Europe. This should improve pricing power going forward.
Foolish bottom line
Ford has already turned its U.S. business around, but the company still has plenty of upside from growth in developing markets like China. Moreover, Ford should benefit from eliminating its European losses. While shareholders’ profits evaporated quickly the last time Ford stock rallied past $15, the company’s gains are more likely to be sustainable this time. Continued strength in the U.S., rapid growth in China, and a European turnaround provide a good formula for success over the next several years.
The article Ford Stock Hits a Two-Year High: Buy, Sell, or Hold? originally appeared on Fool.com and is written by Adam Levine-Weinberg.
Motley Fool contributor Adam Levine-Weinberg has no position in any stocks mentioned. The Motley Fool recommends Ford and General Motors. The Motley Fool owns shares of Ford.
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