Ford Motor Co.
) reported 2010 full year net income of $6.6 billion,
which was its highest net income in more than 10 years. We
Ford's international operations
contribute 35% to its stock price - almost similar to its North
American operations (both
and trucks together) that contribute almost 36%. In
2010, Ford's South American operations contributed 8.3% to its
total automotive sales of $119.3 billion (up 0.6% from
2009). We expect that international operations will become
increasingly more valuable for Ford. Ford competes globally with
automakers like BMW (GR:BMW), GM (
), Daimler (ETR:DAI), Audi (
), Honda (
), Toyota (
) and others.
We have a price estimate of $20.59, which is around 42% above
the current market price.
In this second article of a series, we will take a closer look
at South America, especially the following six countries -
Argentina, Brazil, Chile, Colombia, Ecuador and Venezuela, which
are the most important markets for Ford in this region.
South American Automotive Industry
Within the above mentioned six South American countries, total
automotive industry sales have been growing by an average rate of
12% every year since 2006, and reached 5 million units in 2010.
From 2009 to 2010, the industry sales growth in these markets was
Of these six South American countries, Brazil, Argentina, and
Venezuela are Ford's principal markets in South America. In
Brazil, the largest market in this region, total automotive
industry sales in 2010 stood at approximately 3.5 million units,
up 11.9% from its 2009 levels. Total automotive industry sales in
2010 were 655,000 units in Argentina - up 28.7% from 2009, and
126,000 units in Venezuela - down 7.4% from 2009.
Ford's Share of South American Markets
Ford's overall market share in the six South American
countries decreased by 0.4% in 2010 and reached 9.8%. Of these
six countries, Brazil witnessed combined car and truck share
for Ford−brand vehicles increasing by 0.1% from its 2009 levels
and reaching 10.4% in 2010. During the same period, Ford's
vehicle market share in Argentina dropped 0.9 percentage points
(ppt,) to reach 12.4%, and in Venezuela it slipped 2.4 ppts. to
reach 18.5%. Combining total industry vehicle sales and Ford's
market share, Brazil is the most important regional market for
Brazil's automotive market has more than doubled since 2002.
The major drivers for this growth have been economic environment
and demographics, relatively low inflation in recent years,
growth in per capita income, low vehicle ownership rates and a
young population. We expect that these favorable factors will
continue to help the expansion of automotive market in Brazil
over our forecast period.
Rising Costs Due to Emissions Standards
In South America, Brazil, Argentina and Chile are introducing
more stringent emissions standards. Brazil approved Euro V
emissions and OBD standards for heavy trucks starting in 2012,
which most heavy vehicle manufacturers will use urea SCR - a
technology that helps take the carbon dioxide out of diesel
exhausts. More stringent light vehicle limits will come into
effect in 2012.
Also, South American countries are implementing requirements
for features such as airbags, safety belts, and anti−lock braking
systems ("ABS") consistent with U.S. and European requirements.
Examples of more stringent safety requirements in South America
include the approval in Brazil of more severe impact
requirements, the mandatory use of front airbags and ABS, and the
introduction of mandatory vehicle tracking and blocking
These could likely increase the cost of technology for Ford's
models and negatively impact its operating margins.
Government Incentives for Local Production
Brazil continues to offer significant incentives to
manufacturers to encourage capital investment, increase
manufacturing production and create jobs. This favorably impacts
Ford, which has most of its South American facilities located in
Brazil. Favorable impact from these government subsidies will
likely offset the negative impact of increased cost of
technology on operating margins and will help Ford's growth
in the region.
Sensitivity of Market Share
Based on our current estimates, we could see a further 3%
upside from our current price estimate for Ford from a 0.50%
change in market share. You can modify the charts above to make
your own forecast.
See our full estimates for Ford.