Higher Input Costs Will Lift Ford's Average Vehicle Price


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Ford ( F ) derives almost 35% of its stock value from its international operations (excluding North America) according to our analysis. In full year 2010, international operations contributed 46% of Ford's automotive sales, including cars and trucks. Ford mainly competes with auto manufacturers like BMW (GR:BMW), GM ( GM ), Daimler (ETR:DAI), Audi ( GR ), Honda ( HMC ), and Toyota ( TM ).

Under pressure from higher raw material costs (particularly steel) Ford has increased the average price of its vehicles twice in 2011 so far, by $130 per model in January and by another $117 in April. A continuing increase in raw material costs as well as new model launches should further lift Ford's average vehicle pricing.

While we anticipate that the average vehicle price for Ford's international sales (excluding North America) will rise to $21,800 by the end of our forecast period, Trefis members predict greater upside towards $22,700.

We maintain a $20.59 price estimate for Ford's stock , roughly 40% ahead of market price.

Rising Raw Material Costs

Due in large part to massive demand from emerging economies, the price of  major raw materials used in the manufacture of automobiles have increased considerably over the past several years. These materials include rubber, plastic, copper, steel, and aluminum. The prices of these commodities have increased 45%, 20%, 23%, 66%, and 40%, respectively, since the beginning of 2010. European trade association, Eurofer, predicts that steel prices will rise faster than raw-material costs in the first half of 2011 due to a hike in iron ore costs. Strong demand from emerging markets for these commodities continues to increase the price of Ford's raw materials, and this trend will likely be long-term.

New Product Launches to Boost Vehicle Prices

Ford recently saw improved vehicle pricing, partly reflecting the success of new products like Ford Fiesta.  Ford plans to launch several new models in Europe, including zero emission electric vehicles as well as next-generation hybrids, the Kuga and the C-MAX Energi. These should help Ford drive sales and maintain one of the newest product line-ups in the industry (see Europe's Contribution to Ford's Stock Value).

Trefis Community Forecast

Trefis members forecast that Ford vehicles' average price in international markets the average price of Ford vehicles in international markets will increase from about $16,000 in 2010 to nearly $23,000 by the end of our forecast period, compared to the baseline Trefis estimate of an increase to just under $22,000 during the same period.

See our complete analysis for Ford's stock here

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

This article appears in: Investing , Investing Ideas , Stocks , US Markets
Referenced Stocks: F , GM , GR , HMC , TM

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