From The Wall Street Journal:
Auto maker will build new plant in Mexico, expand existing factory
By Christina Rogers | Updated Feb. 8, 2016 6:22 a.m. ET
Ford Motor Co. will build a new assembly plant in Mexico and sharply increase factory output from that country, representing the latest shift of investment abroad by a Detroit auto maker following the signing of a costly new labor deal.
The No. 2 light-vehicle seller in the U.S. plans to add 500,000 units of annual Mexican capacity starting in 2018, more than double what it built in 2015, according to people briefed on the plan. The plan mirrors General Motors Co. ’s $5 billion investment to double Mexican capacity by 2018.
Ford will build a new assembly complex in San Luis Potosí, and expand an existing factory near Mexico City. The moves will make room for several models, including a yet-to-be-disclosed hybrid vehicle that is described as a Toyota “Prius fighter,” and will allow Ford to focus its U.S. factories on higher-profit trucks and sport-utility vehicles. . . . .
Detroit auto makers have long built cars and trucks in Mexico, but the country is looking more attractive following a new labor deal struck in November with the United Auto Workers that raises wages for U.S. factory workers. Labor rates in Mexico are roughly one-fifth of those earned by unionized workers in the U.S., a gap that is only expected to widen as UAW wages approach nearly $30 an hour in coming years, representing as much as a $10 increase for some newer hires.
There’s more at the original, but this is hardly unexpected: with the costs of labor in the United States increasing, businesses do what they can to keep up profits. One thing that conservatives understand, and the left do not, is that the first concern of any corporation is to maximize profit for its shareholders. Patriotism doesn’t matter, concern for workers doesn’t matter, nothing matters more than the duty of the corporate leadership to provide profits for shareholders. Of course, the union disagrees:
UAW President Dennis Williams, speaking to reporters on Friday, said he doesn’t buy the argument that car makers can’t absorb higher labor costs. GM late last year laid out plans to start shipping Buick SUVs from China to the U.S., and one of Fiat Chrysler Automobiles NV’s new Jeeps is built in Italy. Ford is planning to build as many as three models at the San Luis Potosí plant, with capacity to churn out as many as 350,000 vehicles a year.
A separate expansion at its existing plant in Cuautitlán will boost output there by an additional 150,000 automobiles. “They’re making huge amounts of profits,” Mr. Williams said. “There is no reason mathematically to go ahead and run to countries like Mexico, Taiwan, Thailand and Vietnam.”
Of course there is: it doesn’t matter how “huge” Ford’s profit margin is, when the goal is to make a greater profit. However, Ford’s profit margin isn’t huge, 5.00% in the third quarter of 2015, down from 5.06% in the second quarter, but up from the first quarter, and a 2.73% profit margin.
Matt Krantz, USA TODAY 7:56 a.m. EST February 8, 2016
Q: Why is Ford stock doing so poorly?
A: Ford (F) shares reflect the realization profit growth probably won’t be as strong as it was – and investors want to pay less.
Investors have pushed shares of Ford down 18% this year to roughly $12 a share. Analysts think the automaker’s adjusted profit per share will rise just 2% this year – a significant slowdown from the 66% growth in 2015. Investors see Ford’s revenue rising 3.6% in 2016 – roughly in line with 2015’s top-line growth.
Falling expectations for profit growth are being priced into the stock. Ford trades for 9.6 times its earnings over the past 12 months, says S&P Capital IQ, down dramatically from its more than 16-times multiple just a year ago. Ford shares now have a P-E that’s below the company’s long-term expected annual growth rate of 15%. Ford’s troubles are more about the stock than the company. The volatile stock market and worries of a global economic slowdown is causing investors to reprice what they think Ford is worth. Analysts have actually been increasing their estimates for what they think the company will earn this year. Analysts expect adjusted profit of $1.97 a share this year, which is 2.6% more than they expected six months ago, says S&P Capital IQ.
In the meantime, Charley Grant of The Wall Street Journal says that Ford stock could, could, make a comeback. Ford has been down, but stocks in general have been down, much of it driven by the sharp decline in the price of oil. Yet the decline in oil prices should be good news for the automakers, as it enables people to buy larger vehicles, the very vehicles where the automakers see their largest margins.
Ford is significantly undervalued; I will be buying Ford.