Ford Motor Co. (F) is one of the world’s most iconic companies and has been among the world's largest for decades, remaining a long-standing component of the S&P 500 Index, even as the index has seen uncommonly high turnover. Ford sells over six million vehicles per year and is the only major U.S. automaker to emerge from the financial crisis without having dipped into the public well to stay viable.
As Ford has expanded and globalized over the decades, the vehicles the company is making have gotten more complex and intricate. Of course, those improvements come at a price — to both the company itself and the consumers who purchase Ford vehicles. Ford released Q3 2018 earnings on October 24, 2018. The automotive company reported revenues of $34.7 billion this quarter, a 4% decrease from $36.5 billion in Q3 2017.
With profits nearly halving between that over that period, how does the company stay afloat?
Ford operates in the world's five major geographical segments: North America, South America, Europe, Middle East and Africa, and Asia-Pacific. Not surprisingly, North America is the company’s biggest market. In Q3 2018, Ford earned EBIT of $2 billion in North America, up from about $1.9 billion over the same period last year. Ford's U.S. sales fell 3.7% in the quarter due in part to a fire that interrupted truck production earlier this year, but the automaker has maintained a 13.3% domestic market share.
Ford's international segments are less promising, however. As an international company, Ford is at the mercy of inflation, currency movements, and unfavorable exchange rates, which are partly to blame for the company's performance shortfalls in recent quarters.
Ford lost $208 million in the Asia-Pacific, a dramatic decline from a $314 million profit a year ago. After Ford sold 261,000 vehicles in Asia-Pacific in Q2 2018, doomsayers began to lament that China may be in danger of overtaking the United States as the world’s largest economy. It's important to keep in mind, however, that growing prosperity in a nation with four times the population means growing demand for goods. U.S. corporations stand to benefit from this demand, particularly when it comes to expensive goods such as automobiles.
In Europe, Ford lost $245 million in Europe, versus a loss of $53 million a year ago. Ford's Middle East and Africa segment earned $47 million, up from a $56 million loss during Q3 2017. In South America, Ford lost $152 million in South America, $2 million worse than a year ago.
Ford has consolidated its business model over the past few years, discontinuing some brands (such as its well-known Mercury brand in 2011), while selling its interest in others (including Land Rover and Volvo). For now, the company offers only two marquee brands: Ford and Lincoln. The former dwarfs the latter, with 63 Ford dealerships for each Lincoln dealership. While Ford-branded vehicles run the gamut from subcompacts to commercial buses, with product lines varying greatly throughout the world, the Lincoln brand includes only five vehicles, all of them either luxury sedans or luxury sport utility vehicles/crossovers.
Making money by selling cars requires huge outlays. Making money by financing the cars, on the other hand, doesn't. Ford Credit, the automaker’s leasing arm, earned the company $678 million in Q3 2018, its best quarterly result in over seven years and a $78 million increase from a year ago. Ford Credit's margins are so wide that the company couldn't be blamed for considering halting all auto manufacturing and just focusing on money lending.
The Bottom Line
The pioneers of the automotive industry — Ransom Olds, Gottlieb Daimler, and Henry Ford – may have had plenty of vision, but they could not have predicted how dominant their industry would be just a century after they got started. Legacy car manufacturers like Ford have the advantage of experience in an industry that requires a tremendous capital outlay for the opportunity to make money on scant margins. Public transportation will always have its place, but for many people, a car remains indispensable. With a global infrastructure already in place, Ford will remain among the few corporations with the ability to deliver those cars.