When discussing companies that are consumer-centric, Ford (F) is rarely mentioned. That’s understandable considering that Ford stock has one of the highest recall rates in the automobile industry.
Unfortunately, this has made us underappreciate Ford’s focus and dedication to creating long-term value for consumers. And it seems the market is underappreciating this value as well, as seen in the fact that Ford’s stock is down more than 60% from its peak of of $37 in 1999.
But Ford stock deserves more respect from Wall Street.
When the financial crisis hit, Ford — alongside fellow Detroit automakers General Motors (GM) and Chrysler LLC — were looking up to the government for help to stay in business. Ford’s relatively good cash position helped it avoid a government bailout. At the end, Ford came out of the recession ahead of GM and Chrysler.
But it rarely gets mentioned that Ford’s focus on providing long-term value is a big part of how it emerged ahead. Rather than cutting back amidst declining auto sales, Ford saw an opportunity and capitalized on it.
The recession was a reality check for consumers in regards to their spending. So Ford shifted focus to making autos that are more fuel efficient without sacrificing performance.
Ford Fusion vs. Toyota Camry
I chose to compare these two mainly because some automobile experts have been comparing their latest models — suggesting that they quite belong in the same class.
As the chart above shows, as of 2008, U.S. sales of Ford Fusion were nowhere near that of Toyota’s (TM) Camry. Interestingly enough, Ford’s Fusion sales grew impressively during the recession, while Camry sales dipped significantly. Sales of Toyota’s Camry didn’t decline because something was inherently wrong with the model. It was just the trend in the automobile industry at the time. This shows that Ford actually made a tweak during the recession that boosted its business.
That tweak was to improve the design of Fusion and make it more fuel efficient. In fact, Fusion 2010 was the most fuel-efficient mid-size sedan in the world.
Considering that high oil prices contributed to decline in auto sales in 2008, it was obvious that consumers were ready to trade in gas-guzzlers for fuel efficiency.
However, while making the Fusion more fuel efficient, Ford ensured that it has since continued to improve both the design and fuel efficiency of the Fusion. As a testament to this, the Fusion 2015 (non-hybrid) is more fuel efficient than the Toyota’s 2015 Camry (non-hybrid). This wasn’t the case in 2008. The image below sums it all up.
The Fusion wasn’t the only bold move Ford made during the recession to offer more value to consumers. In 2009, Ford introduced an improved Ford Transit Connect in North America. One of its models — the L1 Econetic 95PS — offers fuel economy of up to 70.6 mpg. Other moves in the direction of fuel efficiency during the recession included Ford C-MAX and Ford S-MAX for Europe and China.
Ford has also been working to improve the turbo lag issues that come with turbocharged engines by introducing twin-turbocharged engines — as with the latest Ford Edge. This means Ford already has another weapon in its hand to fight competition, as turbocharged engines are taking over.
Providing More Value With the F-150
By ditching the traditional steel body for an aluminum body, Ford has made the F-150 the most fuel-efficient auto in its class. It’s already been discussed enough that the improved fuel efficiency of the new F-150 has a lot to do with the lighter weight of the aluminum body.
But that’s not the only value Ford is offering here. Ford knew that by introducing a new body, costs were likely to run high. Experts were particularly concerned that the improvement would mean higher insurance premiums.
However, this hasn’t been the case so far. In fact, Ford took specific steps to ensure that the improvement would not bring higher premiums.
The Car Connection noted that Ford built the new F-150 such that it allows for bodywork and mending on a small scale. In other words, F-150 owners have the choice of replacing a small and cheap part of the aluminum body instead of changing a large panel.
In addition, we can see again that Ford is trying to keep repair costs in check.
Takeaway: Ford has its consumers in mind at every stage of product development.
A Consumer-Centric Model Doesn’t Hurt Efficiency
It would be expected that investment in fuel-efficient vehicles would hurt Ford’s own efficiency, since it was a relatively new venture. But Ford has done a great job of maintaining healthy efficiency.
For instance, one might presume that the spread between revenues and cost of goods sold would shrink during the refocusing era, since this should normally see COGS increase without any inherent guarantee that revenues would follow suit.
But Ford has been able to maintain a healthy spread between these two over the past five years, as the chart below shows.
Since costs aren’t weighing down heavily on revenues during this early part of the refocus, investors can expect Ford to widen this spread as time goes on — when the new system becomes more mainstream. Just to be clear, a wider spread between revenues and cost of goods sold would go some way in tilting Ford’s bottom line toward the positive axis.
Takeaway
Undoubtedly, Ford is struggling right now, as pressure has been on sales in recent months. However, with Ford’s focus on making fuel-efficient vehicles that consumers want while maintaining good performance, investors should remain positive about the long-term future of Ford.
Consumers will forever be interested in saving costs on fuel, but the market doesn’t seem to understand this right now. It’s time for investors who understand this value to take advantage of the currently undervalued Ford stock and take (more) positions. The market will surely get it someday.
As of this writing, Craig Adeyanju did not hold a position in any of the aforementioned securities.
