Europe’s Contribution to Ford’s Stock Value

Ford Motor Co. (NYSE:F) recorded full year net income of $6.6 billion in 2010, its highest net income in more than 10 years, with international operations (outside North America) contributing 46% of its total automotive sales during the year. We estimate that Ford’s international operations represent roughly 35% of its stock value, similar to the contribution from the country’s North American operations (both cars and trucks together). Ford competes with other global automakers like BMW (GR:BMW), GM (NYSE:GM), Daimler (ETR:DAI), Audi (NSU:GR), Honda (NYSE:HMC), and Toyota (NYSE:TM).

We have a price estimate of $20.59 for Ford stock, roughly 35% ahead of market price.

Here we take a look at Ford’s outlook in key international markets. This analysis covers the company’s operations across 19 countries – Britain, Germany, France, Italy, Spain, Austria, Belgium, Ireland, Netherlands, Portugal, Switzerland, Finland, Sweden, Denmark, Norway, Czech Republic, Greece, Hungary, and Poland.

European Automotive Industry

Outside of the United States, Europe is Ford’s largest market for cars and trucks. It added $29.5 billion (25%) to the company’s total automotive sales in 2010. The automotive industry in Europe is intensely competitive – Ford’s principal competitors in Europe include General Motors (NYSE:GM), Volkswagen A.G. Group (ETR:VOW), PSA Group (EPA:UG), Renault Group (EPA:RNO), and Fiat SpA (BIT:F). For the past 10 years, the top six manufacturers have collectively held between 69% and 75% of the total market.

In 2010, total vehicle sales in these nineteen countries stood at 15 million, a decrease of around 3.5% from 16 million units sold in 2009. This decrease was largely due to the termination of government scrappage programs during 2010, which were in place during 2009 to incentivize new vehicle purchases during the economic crisis that began in late 2008.

Ford’s Share of European Markets

The Ford brand’s car and truck market share dropped by nearly 1% in 2010, leaving this number just north of 8%. Within the nineteen European countries listed above, Ford sells the highest number of cars and trucks in Britain and Germany. Consequently, Ford’s sales are very sensitive to economic changes in these two countries.

In Britain, industry sales increased to 2.3 million units in 2010 (3.2% growth from 2009). 2009 sales in Britain were considerably lower due to the economic crisis that began in late 2008. In Germany, government stimulus programs ended in the last quarter of 2009. This led to industry sales in Germany declining by 21% in 2010 to 3.2 million units. Ford−brand combined car and truck market share in 2010 was 15% in Britain (2% below 2009 levels), and about 7% in Germany (1% below 2009 levels).

European Austerity Measures to Hamper Auto Sales Growth

Following the sovereign debt crisis in Greece, most European countries decided to adhere to strict austerity measures to reduce their sovereign debt levels. This will likely put pressure on European vehicle sales in the short-term.

Competition from Japanese and Korean Auto Companies

The competitive environment in Europe is expected to intensify further as Japanese and Korean manufacturers increase their production capacity in Europe, and as manufacturers of premium brands (e.g., BMW, Mercedes−Benz, and Audi) continue to broaden their product offerings. This will put downward pressure on Ford’s market share in these regions.

Ford Ready to Fight with New Vehicle Launches

Ford plans a strong product line-up to keep its vehicle portfolio fresh. Higher operational costs in 2010 should translate into new feature advancements for Ford’s 2011 line of vehicles.

Ford plans to launch several new models in Europe, including zero emission electric vehicles like the new Focus Electric, Ranger Wildtrak and Vertrek SUV concept. Ford will also launch the next-generation of hybrids, the Kuga and the C-MAX Energi, and these should help Ford drive sales and maintain one of the newest product line ups in the industry. This should curtail Ford’s market share decline in these regions.

Potential Downside to our $20.59 Price Estimate

A difficult economic environment in Europe could put added pressure on Ford’s auto sales in Europe over the near-term. This, coupled with increased competition, could spur downside to our base case forecasts and $20.59 price estimate for Ford stock.

Drag the trend line in the interactive chart above to examine how downside to our base case forecast for Ford’s international market share could affect the company’s stock value.

See our complete analysis for Ford stock here