Ford is dirt cheap if they come anywhere close to their own guidance for next year. Clearly that guidance is in doubt or it wouldn’t be so “cheap”. Before I go into why I was happy to get long this morning, let’s take a look at what could go wrong.
Recently, Ford told us that things are not well in Europe and Latin America. Previously, outgoing CEO Alan Mullally said that the worse in Europe was over. That doesn’t appear to be the case. Ford said it will hit the low end of its previously stated margin guidance, somewhere around 8%. That started the stock on a precipitous decline. Now 8% margins are hardly a disaster, but the fact that Europe and Latin America soured and Ford didn’t anticipate it, one can certainly question the validity of their overall global guidance.
What else? Well, North American auto sales may have peaked. The annual run rate is now approaching 17 million vehicles. That’s high. It’s possible sales have hit a high here at home. It’s a risk a shareholder has to consider without question.
Finally, a worldwide slowdown or domestic recession wouldn’t be good news for any industrial, let alone Ford. But at some point, are not many of these risks priced in?
Behold, the F-150
Followers of the auto-industry know all about the F-series. It’s Ford’s cash cow. It’s basically the iPhone for Ford. If the F-series doesn’t sell, Ford would have serious problems, like real serious. Like, testimony in front of congress serious.
Despite of the golden goose performing well, Ford has decided to “blow it up”. Looking forward to a government mandated 50 mpg fleet requirement by 2025, Ford wants to revamp the F-series today, not tomorrow, TODAY.
The aluminum F-150 which will debut shortly has been in the works for almost 5 years. Mullally, formerly of Boeing was an easy sell on aluminum from all reports. Mark Fields, Mullally’s top lieutenant at the time and current CEO came around shortly thereafter and spearheaded the effort according to most people.
Now it’s make or break. Can an aluminum truck hold measure up to the F-series standard? Ford is promising fuel economy close to 30 mpg without sacrificing towing capacity in any way. It all sounds great and the company has done some exhaustive testing.
I would urge you all to read this piece in Fortune Magazine about the “gamble.”
Rather then rest on its laurels, Ford is innovating. Instead of trying to squeeze every nickel out of the current F-series, they are rolling the dice and possibly risking the future of the franchise. I think that’s outstanding and the company will be rewarded for this for years to come.
This is the same sort of foresight that kept Ford out of bankruptcy and out of a bailout from the U.S. government. I think the new F-150 can tow any losses from Europe and Latin America making the risk reward too good to pass up.