Ford Motor President for the Americas Mark Fields said the company raised its 2012 industry forecast thanks to a solid first quarter of U.S. auto sales.

Source: ford.com
Ford now expects U.S. auto industry sales for the year to be between 14.5 million and 15 million vehicles, including medium and heavy trucks. That is up from its previous forecast of between 13.5 million and 14.5 million.

Translated to the benchmark most of the industry uses, which does not include medium and heavy trucks, Ford now thinks U.S. 2012 light vehicle sales will be between 14.2 million and 14.7 million vehicles.

First-quarter U.S. light vehicle auto sales were about 14.5 million to 14.6 million vehicles, which was the best quarterly sales rate in four years. Last year, U.S. light vehicle sales were 12.8 million.

The Associated Press is reporting that Ford (F) will recall 140,000 of the Focus cars that it built in 2010. While this obviously isn't good news for the owners of these vehicles, I highly doubt Ford's stock price will be very much affected by this headline. After all, the issue with the cars hasn't caused any crashes or injuries yet, and the problem is merely that the windshield wiper may malfunction if water gets inside it.

In fact, I think there's a serious buying opportunity to be found in Ford stock right now. A look at some basic statistics reveals Ford could be significantly undervalued right now. The stock has a price to earnings ratio of 2.52 compared to 5.42 for General Motors (GM) and 115.19 for Toyota (TM). Admittedly, Ford does have a higher price to sales ratio than General Motors (0.35 vs. 0.26), but I think the price to earnings ratio is more important for an industry where it's not always easy to cut costs. The margins are another good statistic to take a look at. Ford has a gross margin of 14.5% and operating margin of 6.02%, and both of these are better than the respective numbers for General Motors and Toyota.

I'm also impressed with Ford's ability to succeed in an economic climate where gasoline costs $4 per gallon. Although the company has always been known for its large trucks, Ford has recently put out smaller vehicles with significantly better gas mileage. The Ford Fusion and Ford Focus are two hybrid vehicles that consumers are snapping up, and almost 95,000 Focuses have been sold since January. In fact, Ford has been able to improve gas mileage in nearly all of the categories of cars it sells, and this is an important reason why consumers are choosing Ford over Toyota and General Motors.

Car sales for Ford were up 11% from February to March, with 223,418 vehicles sold. Ford is also prepared if gasoline prices go down. For instance, Mark Fields, president of Ford Americas, said, "We're not using a dedicated technology for a dedicated plan. We'll be able to be flexible and follow the consumer." In that case, Ford's popular trucks could even more valuable to the company, and the F-series actually saw a significant jump in sales in the first quarter of 2012 regardless.

Ford's China plan should have shareholders excited as well. The company will spend $600 million to expand its Chongqing factory complex, and this is an important strategy as the company attempts to catch up with its rivals for the Chinese market. Specifically, the new facilities will allow Ford to make 350,000 more vehicles per year, which would put its total vehicles per year in China at 950,000 in the year 2014. Another important aspect of this expansion is that it will allow Ford to triple the number of cars in its Chinese product mix from five to fifteen during this time span. In my opinion, this expansion will be enormously successful, well worth the $600 million that Ford is spending on it. In fact, this move is especially important because Ford has met some significant headwinds in China. Sales for January and February totaled 71,954, which was down 16% from the same time one year ago. General Motors improved sales by 7.7% in this same time span, and I believe Ford's plans in Chongqing will be crucial for the company to make a turnaround in this arena.

As for business here in the U.S., Ford has been somewhat optimistic. Ford upped its estimate for total auto industry sales in the U.S. to between 14.5 and 15 million vehicles, and this appears to be a more accurate scenario than the previously forecasted 13.5 million to 14.5 million range. At the same time, Ford is predicting that it will lose some U.S. market share this year, but I don't think this market share loss will be enough to significantly derail the business. Additionally, light vehicle auto sales for the first quarter were quite good, that number being slightly above 14.5 million.

My bigger concern is actually in Europe, a region that Mark Fields had this to say: "We expect first-quarter results to be about the same or somewhat worse than the fourth-quarter 2011 pre-tax loss of $190 million." Most of the problems are there macroeconomic in nature, so it's obviously not Ford's fault, but the business would certainly be healthier if it could find a way to keep car sales growing. On the other hand, the Asian situation is somewhat better because although Ford expects a "small loss" for the first quarter, much of that is due to investment spending. In that region, Ford's most exciting projects include new products like the Ford Ranger (a midsized pickup truck), the Ford Focus, and the Chongqing plans discussed earlier in this article.

Trends on the statement of cash flows are also looking good for Ford. Ford had a net change in cash of $2.343 billion during 2011, and operating cash inflow of $9.784 billion played a significant role in that. Assuming these strong cash flows keep up (which is what I'm expecting), it shouldn't be long before Ford increases its dividends. In fact, the current dividend yield of 1.6% is a bit disappointing, so hopefully this will happen sooner than later.

Even without a dividend increase though, I think shareholders can be pretty happy with Ford's global game plan. The North American market is strong, the Asian market is growing, and there's not much the company can do about the European situation. With its diverse product mix, I expect Ford to move higher in the coming months, especially given the company's ability to adapt to changes in the price for gasoline.

- Ford and Dow Team Up to Bring Low-Cost, High-Volume Carbon Fiber Composites to Next-Generation Vehicles
- Weight reductions of up to 750 pounds on future Ford vehicles are key to meeting fuel economy and electric vehicle range targets
- Ford and Dow engineers and researchers will combine efforts to develop low-cost carbon fiber and component-level manufacturing processes

DEARBORN, Mich., April 12, 2012 – Cutting the weight of new cars and trucks by up to 750 pounds by the end of the decade is a key component of Ford's strategy to improve fuel efficiency. In order to help achieve that goal, Ford Motor Company is partnering with Dow Automotive Systems, a business unit of The Dow Chemical Company, to research the use of advanced carbon fiber composites in high-volume vehicles.

"There are two ways to reduce energy use in vehicles: improving the conversion efficiency of fuels to motion and reducing the amount of work that powertrains need to do," said Paul Mascarenas, Ford chief technical officer and vice president, Research and Innovation. "Ford is tackling the conversion problem primarily through downsizing engines with EcoBoost® and electrification while mass reduction and improved aerodynamics are keys to reducing the workload."

Ford is investigating a range of new materials, enhanced design processes and new manufacturing techniques that would enable automotive structures to meet increasingly stringent safety and quality standards while cutting weight.

"Vehicle weight reduction for our customers through intelligent design with a materials focus has been a priority for Dow Automotive Systems," said Florian Schattenmann, director of Research and Development for Dow Automotive Systems. "This partnership with Ford on carbon fiber composites is a logical next step to progress already achieved through the use of lightweight, high-strength polymers and structural bonding technology."

Carbon fiber composites have been used in aerospace and racing cars for decades due to their unique combination of high strength and low mass. Until recently these materials have been far too costly for use in high-volume mainstream applications.

Dow Automotive Systems and Ford have signed a joint development agreement that will see researchers from the two companies collaborate on several fronts. The development teams will focus on establishing an economical source of automotive-grade carbon fiber and develop component manufacturing methods for high-volume automotive applications.

The partnership will seek to combine the best of Ford's capabilities and experience in design, engineering and high-volume vehicle production with Dow Automotive's strengths in R&D, materials science and high-volume polymer processing.

"Reducing weight will benefit the efficiency of every Ford vehicle," added Mascarenas. "However, it's particularly critical to improving the range of plug-in hybrid and battery electric vehicles."

The joint development effort will also leverage work that The Dow Chemical Company has already begun through partnerships with Turkish carbon fiber manufacturer AKSA and the U.S. Department of Energy Oak Ridge National Laboratory.

If the joint development effort is successful, carbon fiber components may begin appearing on new Ford vehicles in the latter part of this decade as product development teams work toward meeting new fuel efficiency standards of more than 50 mpg and extending the range of plug-in vehicles.