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Ford Can Lift its Truck Market Share by Controlling Costs of Launching New Models

By: Trefis
Posted: 2/1/2011 2:25:00 PM
Referenced Stocks: F;GM;HMC;TM

Ford ( F ) is starting to gain share in the truck market in North America from last year due to the success of the F-series. Ford competes with automobile makers like Daimler (NYSE:DAI), Honda ( HMC ), GM ( GM ) and Toyota ( TM ) that are trying to recoup losses from a drop in sales during the recession.

In its recently released Q4 earnings, Ford registered a $6.56 billion profit for 2010, which is the highest annual net income in more than a decade. In spite of the good overall performance, the company is still struggling with few problems - repaying debt, the rising costs from launching new vehicles, and higher engineering and marketing expenses.

While we expect  Ford's truck market share in North America will be around 20% level over our forecast period, Trefis members expect predict Ford's truck share will rise close to 25%, which indicates a potential upside of just under 10% to our price estimate. We are still updating our estimates, but the current Trefis price estimate for Ford's stock is $14.26 , around 20% below the current market price.

Strong Truck Sales and Promotions Will Boost Share…

With the introduction of the new 2009 F-150, Ford has gained market share recently in full-size pick-ups. At the recently held North American International Auto Show in Detroit, Ford's Global Sales and Marketing Head, Jim Farley, said he is as optimistic about 2011 as he was in 2010 when sales increased by 19%. Farley particularly emphasized the company's focus on the pickup and commercial fleet segment, and expects this segment (including medium- and heavy-trucks) to drive sales in 2011.

New U.S. tax laws allow for businesses to receive tax breaks on capital purchases like trucks, which could provide a lift to pickup truck sales in 2011, and Ford is also introducing incentive campaigns like cash rebates and zero-percent financing to try to win over customers from competitors.

…But High Debt and Costs Still A Concern

Although Ford posted strong profits for full year 2010, its Q4 profits plunged as the company repaid a large portion of its automotive debt it had taken before the financial crisis. Increased costs for new product launches, higher engineering expenses and rising marketing costs for newly launched and redesigned trucks weighed on its profit margins. Ford still has a sizable portion of its debt to repay in next few years. If it continues to incur heavy costs for marketing and new products, this could impede its margins and its market share.

Trefis Community Forecast

Trefis members expect Ford's truck market share in North America will increase from about 21% in 2010 to almost 25% by the end of the Trefis forecast period, compared to Trefis estimates of market share remaining around 20% over the same period. The member estimates imply an upside of close to 10% to the Trefis price estimate for Ford's stock.

Our complete analysis for Ford's stock is here .