Analyst: International Growth Key to Ford's Future

The automaker is moving in the right direction, but it needs to become less dependent on truck sales and the North American market, Frost & Sullivan analyst says.

Ford's third-quarter financial results drew a chilly response from Wall Street on Wednesday, as the company posted a lower profit and pared back the forecast for its automotive operating margin. But one analyst remained mostly bullish about Ford's future.

"Actually I thought Ford did quite well given the current market environment," said Stephen Spivey, Frost & Sullivan's program leader for automotive and transportation.

The automaker reported total revenue of $33.1 billion in the third quarter, up $4.1 billion year-over-year. However, net income slipped to $1.6 billion -- down $38 million from third-quarter 2010 -- due to the impact of lower commodity costs and losses in Europe and Asia.

Still, Spivey is encouraged by a number of things, especially the reemergence of "the core Ford customer -- the pickup-truck owner." Through September, Ford's truck sales were up 9.2% to 582,769 units, led by its bread-and-butter F-Series.

Sales of the Escape SUV rocketed nearly 32% in the first nine months of 2011, while sales of the Ranger compact pickup jumped 16%, according to Ford.

Spivey also credits Ford for making progress with its lineup of smaller cars -- a segment in which the automaker has struggled. Sales of the midsize Fusion, for example, shot up nearly 17% in the first nine months of the year, to 188,439 units.

However, Spivey is concerned that Ford still is too dependent on truck sales, which comprised more than a third of its total sales through September. Trucks and SUVs combined for nearly 65% of Ford's total sales during that same period.

"Over the short to medium term, I think it's good for them," Spivey said. "Over the medium to long term, I think they need to look at improving their position in the passenger-car segment, where competitors such as Hyundai and Nissan have really grown over the past several years."

Lagging Behind Competitors in International Markets

Spivey noted that Frost & Sullivan is "very bullish" on electric and hybrid vehicles, despite tepid sales of the Chevrolet Volt and Nissan Leaf so far. Ford has promised that a half-dozen electrified vehicles are in its product pipeline in North America.

"I think Ford seems to be taking more of a wait-and-see approach with regard to these alternative-powertrain vehicles," Spivey said. "When you look at the marketplace today, it may not be such a bad idea to be doing that, because it seems that a lot of people have gotten out in front of it, but the market demand is just not there.

"There's the lack of infrastructure, charging and things like that that still need to be resolved."

Ford's No. 1 priority, though, should be expanding more aggressively into international markets, Spivey asserted. To that end, the automaker recently announced that it will build a $1 billion vehicle and engine factory in Gujarat, India.

"I think they're strongly positioned in their core North American market. But from a product perspective, they want to look at some of the overseas markets where they're behind," Spivey said.

To make inroads into automotive markets such as China and India, Ford will need to develop more smaller-profile passenger cars, Spivey said. In the meantime, he believes the automaker can leverage the goodwill generated by its refusal to take bailout funds.

"It's clear that internally at Ford they understand that they have this marketing opportunity, that the Ford name has a lot of power right now," Spivey said. "And I think that they can trade on that while they develop products for these international markets that will also shore up their long-term position here in North America."

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