GOLDING’S TAKE: Ford reports are first; they might also be best…
Overcrowded the global car market may be, but the number of car makers determined to snatch a greater share continues to grow.
Today’s financial results from Ford – number two in Europe by unit sales -contained endless confirmation that management is committed to combat and that chairman Mulally is marching up front.
Mulally told his shareholders during a results broadcast that “our approach around the world is right; we are increasing investment in new product”.
His plan is to address a broader spread of the market with more new vehicles in more segments. The capex reserved for new products and new capacity would be held at the present level: “We must make investments now,” he told his shareholders.
No surrender in other words.
Furthermore, he revealed that his cash generation was positive giving him greater fire power to deliver his ambitions. It was the 11th straight quarter of improved cash reserves. Despite the weakness in demand in Europe his model spread was letting him participate fully. He believed that industry volume had deteriorated and was involved in stock reduction. But he was not incurring write-downs by doing so.
In China and India, Mulally is seeing demand improvement while in Europe he thinks he can secure at least the same volume as last year. He is putting more models into China and will therefore cover more segments there than hitherto.
He has generated enough headroom within his finances to be able to pay down some of the debt that he was forced to take at the punitive rate of 7% over the last couple of years. Just over $600m worth has been paid back early.
He has refused to be flashy with his forecasts and has done no more than commit to delivering the same pretax profit as last year. He does own up to the expectation of a horrid year in Europe with profits there below, or similar to last year. US margins will be substantially better than that – possibly up by as much as 10%.
Without saying as much, Ford realises that the Mondeo [European version of the US Fusion] is costing. The clue to that is that the launch of the new model has been pushed back a year to 2014.
There is much depending on sales of full-size pick-ups… a peculiarity of the USmarket. Over 400,000 units of capacity was generated last year in the expectation there will be an increase in housing starts and more tradesmen tending to new building regulations that have been introduced. They all need a new pick-up… maybe.
Mulally was visibly pleased to be able to disclose that warranty was unchanged ending a period of poor quality costing the company compensation charges.
It is not all plain sailing at Ford but it’s good enough to avoid shareholder complaint. It is probable that as the other car groups start reporting… Ford’s effort will look even better.