Hold your horsepower

Ford’s profit fender-bender isn’t as bad as it looks. Coming up short of Wall Street’s fourth-quarter estimates dinged the auto maker’s shares, which fell as much as six per cent on Friday morning before recovering a bit. It’s another reminder the Detroit auto maker is not as pristine as shareholders at times blindly assumed it was just a year or so ago. But Ford’s also in better shape than recent scrapes suggest.

Commodity costs accounted for much of the problem in the final months of 2011. Fluctuations in commodities prices hit all auto makers, but Ford especially because its hedges were out of whack. While costs are likely to remain high, Ford doesn’t expect as bad a risk-management result.

 

Ford’s balance sheet and product line-up are both solid. Earnings and reduced debt added $8 billion to its burgeoning net cash pile last year. Its latest version of the Fusion was the star of the Detroit auto show this month. The North America manufacturing division remains strong, posting an 8.3 per cent pre-tax margin for the year.

There are still challenges, of course. Europe remains unprofitable. Asia has long been a weak spot, though Ford is investing. Seven factories are under construction on the continent to prepare for its push to sell a third of its vehicles in China by the middle of the decade.

Considering the frenzied competition in that market, shareholders are right to be sceptical until they see more progress. But even allowing for that, and for the challenges in Europe, Ford’s stock still looks attractive. It’s trading at less than eight times expected 2012 earnings, Thomson Reuters data showed. That implies either no growth or greater losses in Europe.

Yet, Ford’s US market share looks solid, as do prices. And, the company will find more savings in the final two years of a plan to put 85 per cent of global volume on just nine common engineering platforms. Investors were already riding shotgun on the story, pushing the shares up nearly a fifth before Friday’s skid. It shouldn’t be long before they shine again.