Ford’s punchy ambition not as worrying as it looks

June 7, 2011

By Antony Currie
The author is a Reuters Breakingviews columnist. The opinions expressed are his own.

NEW YORK — Ford’s punchy global ambitions aren’t as worrying as they look. The Motor City automaker expects to sell 8 million vehicles by the middle of the decade, according to the plan unveiled on Tuesday by Chief Executive Alan Mulally. That’s 50 percent higher than Ford’s showing in 2010 and more bullish than the one-third sales pick-up he sees for the industry. Such unbridled optimism from Detroit usually falls flat. But there’s less to fear from failure than in the past.

Such rosy predictions no longer need to come true for Ford to remain profitable. Last year, for example, the company’s automotive division cranked out a 6.1 percent pre-tax margin even though car sales remained weak. Success with its latest plan would boost that to around 9 percent, Mulally reckons. Missing the targets would crimp that performance. While hardly ideal, it’s still better than racking up billions in losses as Ford and rivals Chrysler and General Motors used to do.

What’s more, the Motown manufacturer remains focused on keeping its balance sheet under control. Ford is paying off another $3 billion in debt this quarter, bringing the total reduction since the end of 2009 to almost $20 billion. Mulally aims to cap auto debt at $10 billion by 2015 and to reclaim the company’s investment-grade credit rating for good.
Existing margins translate into $9 billion in cash each year for Ford, more than triple the increase in annual capital expenditure earmarked to improve sales. That should give investors some comfort that Ford has both the wherewithal to pay a dividend soon and enough wiggle room should targets exceed the company’s reach.

They’re a tall order. Mulally predicts most of the extra sales will come in Asia. It’s a growth market but Ford lags rivals in the region. While failure won’t push Ford into the red as it once might have, it could spur Ford to revisit another of its past follies: a reckless buying spree. It sounds like acquisitions are far from Mulally’s mind. But he’s almost 66, so may not be around by 2015, and his successor could have other ideas. The sooner Ford shows healthy progress on its new goals, the better.

Comments

I like my Ford truck and I wish the company well. My money was confiscated by our Govt. to pay for the bailouts of the other companies so I don’t plan to buy any of their products.

Posted by zotdoc | Report as abusive
 

I really wonder if Ford will do well in asia. Though it claims it doesn’t have much close rivals, I think many asians still believe in buying japanese or korean cars, and when it comes to luxury cars, they would choose German.
Peter – http://www.pmwltd.co.uk/

Posted by Peter_Mould | Report as abusive
 

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