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Why should investors pay attention to Ford’s market share?

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Ford’s global market share

The chart below is from Ford’s first quarter 2013 earnings call slide deck. Ford is global, but under-represented in high-growth markets.

 

In the chart above, Ford is well above it’s fair share in North America, having 15% of the market versus 7% globally. Looking at it this way, Ford is under-represented in China and the Middle East & Africa. As discussed earlier, Ford is addressing this with increased investment in China and India, but it also broke out, as a separate segment, the Middle East & Africa. Ford is changing its structure to get its fair share of these markets. One could look at this as a mess up, or alternatively, as an opportunity for Ford. They are global, but are their products?

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The purchase decision among automobile products includes several factors, like styling, utility, seat count, fuel economy, reputation, safety, dealer reputation, depreciation, total cost to operate, and engine performance. It’s a complex purchasing decision driven by the ability to purchase, and then, the above factors to determine which product the consumer finally decides on purchasing. A competitive company has to have the products the consumer wants. The market is constantly changing, with new technologies and styles driving new products.

Market share and operating leverage

Here’s where market share matters: operating leverage. In 2013, Ford spent $6.5 billion on capital expenditures. It maintains 65 manufacturing facilities globally with approximately half of them in North America. If you go from one to two shifts at a plant, you double volume, but only have to pay labor and parts, in turn improving manufacturing profitability. The same concept applies to research and development (R&D). Ford spent $6.4 billion on R&D in 2013, developing technologies for future products. If Ford develops a differentiating technology, it can use it on over 6.3 million vehicles, leveraging its technology investments. This should provide Ford higher margins.

One could invest in Ford (F), General Motors (GM), Volkswagen (VOW), Toyota (TM), BMW Group (BMW), or in the industry through the exchange traded fund CARZ.

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