Monday 15 July 2019

Share Watch: Ford is changing gears in a world of new tech and tastes

 

Stock photo: AP
Stock photo: AP

John Lynch

There is nothing like the back issues of business magazines to show how much the world is changing. It is a shock to the system to discover that the first Fortune 500 list of the world's top companies, published 60 years ago, found the top 10 industrial giants were mostly American manufacturing companies; three of which were car-makers.

Of these, only Ford (our company today) is still intact, though battered and bruised. Of the others General Motors is emerging from bankruptcy while Chrysler is an offshoot of Fiat. Today the Americans still dominate the Fortune 500 but with tech companies like Apple and Facebook.

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In Ireland we have always had a soft spot for Ford, probably because of the decision of founder Henry Ford to recognise his roots by building a decent-sized factory in Cork. That was, of course, after he revolutionised assembly-line car production and made motoring affordable.

Ford would go on to become one of the largest and most profitable auto companies in the world, even if it has slipped down the pecking order. Today it is the fifth-largest auto group in the world after Toyota, VW, Hyundai and GM.

Floated on the stock exchange in 1956, the Ford family retained 12pc of the shares and 40pc of the voting rights.

Today the family still retains its super voting rights but the family's desire to preserve its legacy kept Ford out of bankruptcy a decade ago, when GM and Chrysler were forced to put their hands out for US government bailouts.

The family share-holding is now only 2pc, the dilution mainly occurring in the last decade as it fought for its survival after the financial crisis. It printed share certificates faster than the US government printed money and as the number of shares rose, the family stake fell.

Today the Detroit car-maker is in the middle of a global overhaul of its struggling empire, announcing thousands of job cuts and major restructuring mainly in Europe and China.

This is to stem losses outside the US as pressure mounts on it to keep up with shifts in technology and a peaking of global demand. In addition to restructuring, it plans a $500m (€4e9m) investment in electric trucks and a global electric car alliance with VW.

Ford in the US has almost ceased producing passenger cars to focus on SUVs and pick-up trucks. It also plans to reduce staff headcount, an action which could spark difficulties with President Donald Trump as he tries to revive the US rustbelt.

In contrast to GM, which has exited the European market entirely, Ford intends staying, but will cut staff and row back on some of its 15 plants and R&D sites.

Ford intends to reduce the number of vehicles available and increase prices. It also plans to withdraw from the Russian market.

Ford has struggled for some time in China and overall sales fell by one third last year. To revive its fortunes it intends launching 30 new models in the next three years, all tailored for the Chinese market. Ford shares have risen from $1.58 a decade ago to $10 today. However, there is frustration that it is still far short of the $16.80 high five years ago.

Sales at $160bn are higher than four years ago but net income at $3.7bn is 50pc less. The recent first-quarter results show some progress with strong profits driven by robust demand for trucks in the US.

Other markets showed improvement, with Europe surprisingly delivering a modest profit and China narrowing its losses.

The new chief, Jim Hackett, has some work to do to win over investors in the 116-year-old company.

While its price earnings multiple is only seven, it is at that level for a reason. Given the changes coming down the road for auto companies, I think Ford shares should be parked until greater market clarity prevails.

Nothing in this section should be taken as a recommendation, either explicit or implicit to buy any of the shares mentioned.

Irish Independent

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