Ford Now Seen as a 'Buy' Based on Quality
21 April, 2008 07:01:00
Thom Buschman
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Ford Motor Company (NYSE: F) has obviously seen better days: it has a market capitalization of only $16.9 billion, recently lost its long-held position as the #2 automaker by U.S. sales to Toyota Motor Company (NYSE: TM), and has reported over $15 billion in losses over the last two years. However, some analysts are beginning to see better days ahead for the beleaguered Detroit company.
Soleil Securities Group upgraded Ford stock from “sell” to “buy” with a price target of $11 per share – a whopping 120% higher than the previous target of $5 per share. Analyst Michael Ward noted that new products combined with cost reductions bode well for the company; though, in the short-term, the economy and strong competition threaten the company's performance.
The market seems to be sharing this upbeat in sentiment about Ford's future – shares are up significantly from under $5.50 per share a month ago to nearly $7.70 per share today.
One of the most interesting developments for Ford's long-term viability is a recent study from the the RDA Group of Michigan that found Ford's vehicle quality is now a statistical tie with leaders Honda Motor Company (NYSE: HMC) and Toyota. This improvement is largely due to every new Ford vehicle launched showing an incremental improvement in quality over its predecessor.
Now, before getting too excited, it is important to note that this study, titled the “2008 U.S. Global Quality Research System” was commissioned by Ford. This doesn't mean the results are invalid but rather that they should be taken with a grain of salt because often such studies are tailored to the strengths of the company paying the bills. In this case, that means the study only examined “things-gone-wrong” with new vehicles during the first three months of ownership. This is definitely important as problems with vehicles fresh off the lot certainly leave a bad taste in a buyer's mouth – but it says nothing about the long-term dependability that Honda and Toyota are known for. Nonetheless, Ford is in the automotive business, and a key part of the turnaround has to be making a better product.
Mark Fields, Ford President of the Americas, said “Our world-class quality is one of the most important aspects of our turnaround in North America. This consistently strong quality improvement should offer today’s customer renewed confidence.” In an effort to renew that confidence, Ford is rolling out a new ad campaign branded “Drive One” that is designed to get consumers to reconsider its vehicles based not just on design but quality – possibly a tall order as Ford's own research shows that less than 50% of vehicle shoppers even consider its products.
Ford is up almost 3% in afternoon trading.
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