Shares in Ford Motor Company (NYSE:F) recently came off significantly following an earnings announcement that didn't quite match analysts' expectations. However, the shares have been a great investment over the past three years, rising from not much more than a dollar in 2008 to nearly USD 20 as stock exchanges recovered and Ford won market share in a recovering US auto market. With a USD56 bn market cap, it's a heavyweight share, with most analysts positive on the stock - so what went wrong to make the shares fall more than 12% in a single day?
On the positive side, Ford looks to have been doing well, having - unlike rivals Chrysler and GM - not taken bankruptcy as a route out of its problems. It's grown its market share for the past two years, with 16% of the market now, though there's still room for it to expand (its market share used to be around 20% in the 'good old days' before Japanese carmakers started making inroads). Toyota, in particular, seems to have lost market share in the US last year. That puts Ford well ahead of the competition. The company has also got one of the youngest product ranges on the market, with 26% of its models recently upgraded and a further 19% to be upgraded or rejuvenated this year. That's well ahead of GM, for a start. Ford's surging sales over the past couple of years can be seen as evidence that it's spending its upgrade money wisely - it's creating new models that consumers really want to buy.
The company has also been paying down its debt. Most car makers have considerable debt - Ford is not the only one - but few are making such good progress on repayments. Moody's raised its outlook on Ford's debt from stable to positive at the end of last year, though it's still two levels below investment grade, and singles out Ford's debt reduction strategy as one of the reasons for its positive opinion.
So why the plunge in the share price?
Industry fundamentals are certainly one reason behind the fall. Commodities prices and oil prices have been spiking northwards. Higher oil prices don't directly hurt Ford, but are likely to put consumers off purchasing cars - particularly discouraging the purchase of larger, less fuel efficient cars, which will make it difficult for car dealers to 'upsell'.…