Ford Motor Co. (F) said growth in Asia and increasing demand for small cars will boost global sales 50 percent to 8 million vehicles annually by 2015 as the automaker switches gears from restructuring to expansion.
“Growth is a new skill to learn for us,” Chief Financial Officer Lewis Booth said today in an interview in New York. “We’ve been good at restructuring businesses over the last decade. Growth takes practice.”
Chief Executive Officer Alan Mulally told investors today that the automaker expects that by 2020, 55 percent of vehicle sales will be small cars and a third of sales will be in Asia.
“Fifty percent is a large number,” Mulally said of the growth target on Bloomberg Television today. “But it’s off a tremendous foundation we have laid to support that.”
Ford will finance its expansion without new debt and while improving profit margins, Booth said. The automaker’s global automotive operating profit margin will widen to 8 percent to 9 percent by mid-decade from 6.1 percent last year, Booth said. In North America, Ford’s operating margin will be 8 percent to 10 percent compared with 8.4 percent last year, he said.
“We are going to finance it out of our own resources,” Booth said. “We expect our cash flow to improve as our profitability improves.”
Ford will reduce debt by $2.6 billion in the second quarter, which will help it return to an investment-grade credit rating, Booth said. The automaker, which will take on $500 million in U.S. Energy Department loans, will pay down $2.3 billion of a term loan and $800 million on a revolving line of credit, he said.
Ford plans to reduce its automotive operations’ debt to $10 billion by the middle of the decade from $16.6 billion at the end of the first quarter, he said.
Toyota Motor Corp. (7203) led the world in automobile sales last year with 8.42 million, topping General Motors Co. (GM) by 30,000. Volkswagen AG (VOW), third last year at 7.14 million, has said it aims to sell 10 million autos by 2018. Executives privately aim to meet that goal by 2015, a person with knowledge of the matter said in October. Ford sold 5.3 million vehicles last year.
“Ford is playing catch-up in China because VW and GM are so dominant there,” Rebecca Lindland, an analyst with researcher IHS Automotive, said in an interview. “They still have work to do in Asia and they have work to do in small cars because people don’t think of Ford for small cars.”
Ford will triple its lineup in China by offering 15 models, including the Kuga small sport-utility vehicle, by mid-decade, Booth said. Ford is spending $1.6 billion to build four factories in China and by next year will have the capacity to build 1.1 million vehicles there, Jim Farley, Ford’s marketing chief, told investors today.
“We’ll be competing in a much broader segment of the market in China,” Booth said. “We’re in 22 percent of the industry segments today, and we’ll be in 50 percent by 2015.”
The automaker’s growth won’t be driven by takeovers, Booth said.
“We have no plans for acquisitions,” he said.
To develop new models and add factories, Ford will boost capital spending to about $6 billion annually by mid-decade, from $3.9 billion last year and as much as $5.5 billion this year, Booth said.
Ford rose 14 cents to $14.05 at 2:50 p.m. in New York Stock Exchange composite trading. The shares dropped 17 percent this year before today.
The second-largest U.S. automaker earned $9.28 billion in the past two years after $30.1 billion in losses from 2006 through 2008. Ford still gets most of its sales and profits from the U.S. and Europe. It had 2.4 percent share of the passenger- vehicle market in China, the world’s largest auto market, J.D. Power & Associates said in April. GM’s share was 10 percent.
“They have to be less dependent on the U.S. and expand in Asia and China, the fastest-growing markets in the world,” Lexington, Massachusetts-based Lindland said of Ford. “That’s where the growth opportunities are and they have to be there.”
Ford is building a new plant in the southwestern Chinese city of Chongqing with its passenger-vehicle joint venture Changan Ford Mazda Automobile Co. and plans to set up a new engine plant there. It sells the Focus compact and Fiesta subcompact in China, where it plans to double the number of dealerships to 680 by 2015.
The new small cars and the redesigned Explorer SUV are commanding higher prices in the U.S., which helped boost first- quarter net income 22 percent to $2.55 billion, the most for the period since 1998.
The automaker borrowed $23.4 billion in late 2006, putting up all major assets including its blue oval logo as collateral. The cash helped Ford to avoid the bankruptcies and bailouts that befell the predecessors of GM and Chrysler Group LLC.
The New York Times reported the sales target earlier.
The automaker may achieve its goal because of rising demand in emerging markets and “an increase in Ford vehicle offerings, especially smaller-sized ones, in these regions,” Levy said. “However, competition should intensify and regional growth could be slower than expected.”
To contact the reporters on this story: Keith Naughton in New York, at Knaughton3@bloomberg.net
To contact the editor responsible for this story: Jamie Butters at firstname.lastname@example.org