(F) Ford Motor Steers Toward Asia

Ford Motor Co. (F) revealed that it expects global sales to expand by 50% to 8 million vehicles by 2015 given the potential growth in Asia, mainly China and India; and rising demand for small cars. The automaker anticipates small cars to account for 55% of the total sales by 2020 compared with 48% presently. One third of the small car sales is expected to come from Asia.

In order to support the increasing sales, Ford aims to triple its dealership to 340 in India and double in China (adding 100 dealerships this year) to 680 by 2016. In China, the company aims to grow its market coverage to 50% in 2015 from 22% presently.

Expansions in China

Ford plans to triple its lineup in China by introducing 15 models, including the Kuga small sport utility vehicle by 2015. In order to develop these new models, Ford will build new plants raising its capital spending to about $6 billion annually by mid-decade from $3.9 billion in 2010 and the projected $5.5 billion in 2011.

Ford has been gearing to catch-up with its rivals in the world largest auto market. The automaker has been lagging behind the big players in the China, including General Motors Co. (GM), Toyota Motor Corp. (TM), Volkswagen AG, Hyundai Motor Co. and their respective joint ventures.

The company plans to expand its production capacity in China to 1.1 million vehicles by 2012. It will spend $1.6 billion to build 4 plants in the country by 2012. In contrast to this, GM, which already produces more than 2.8 million vehicles per year, has targeted to grow its production capacity to 3.7 million vehicles by 2015.

Debt Reduction

Ford plans to reduce its debt by 15.7% or $2.6 billion to about $14 billion by the end of this month, which is less than half of the $33.6 billion it had in 2009. The company will repay $2.3 billion in term loan and $800 million on revolving credit.

By 2015, the company plans to cut its debt level to $10 billion from $16.6 billion at the end of the first quarter.

The company expects the move to help regain investment-grade credit rating. Presently, Fitch Ratings and Moody’s Investors Service place Ford two notches below investment grade while Standard & Poor’s has placed the company three notches below investment grade.

Ford also plans to resume its dividend payment to boost its shareholder confidence, but not before next year.

The Bottom Line

We are not surprised about Ford’s highly optimistic expansion plan given the fact that it had already turned in $9.28 billion in profits in the past 2 years after incurring losses of $30.1 billion from 2006 to 2008.

The Zacks #3 Rank (Hold) company posted a roaring 48% rise in profit to $2.61 billion in the first quarter of 2011 from $1.76 billion in the same quarter of 2010. On earnings per share basis, profits rose 35% to 62 cents per share from 46 cents per share a year ago, thereby topping the Zacks Consensus Estimate by 12 cents per share.

However, Ford still looks up to U.S. and Europe for the lion’s share of its sales and profits. Therefore, its effort to take the helm towards Asian countries, especially China, for its earnings growth needs to add a new dimension in its business strategy, which may not materialize easily.

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