Mr. X - Ford

I like Ford. Or more specifically, I like the long term prospects of Ford. Cash for clunkers has been a huge plus for them in the past few months but it really doesn't mean anything in terms of the big picture. FYI, cash for clunkers is a program where people trade in their old gas guzzling machines for up to $4000 for a new environmentally friendly vehicle. It was a program put together by the US government to help the US auto industry and to reduce emissions.

However, again, I must emphasize that it not the reason why you should be buying into Ford. What I like most about it is the weakness of its competitors. GM and Chrysler are still in the process of restructuring their businesses and still making huge losses (or barely breaking even, depending on when you read this entry). Consumers are more likely to purchase Ford vehicles rather than GM or Chrysler ones. I can think of a couple of reasons off the top of my head. 1. Consumers have little faith in GM/Chrysler. Why buy a car from a poorly managed company? 2. Potential lack of after sales service. GM/Chrysler may have to shut down a few branches (or they may have done so already) to reduce costs. 3. The loser effect. People may be seen as losers buying cars from a company that has been barely resuscitated by the government.

Well, now the skeptic in your brain should be thinking. What about the recession/slow rebound? Doesn't that hurt Ford as well? Of course it does. Here is where you need to weigh the effects of the previous economic downturn. Will the decrease in demand for cars in general be offset by the increase in demand for Ford cars due to its weaker competitors? Chances are the former is greater than the latter at the moment. Nonetheless, eventually both the economy and Ford's competitors will recover but the latter's recovery will be significantly longer since trust, once shattered, takes a lot of time to be built up again. So, in the long run, the increase in demand for Ford cars will offset the decrease in demand for cars in general. Or in other words, Ford will have a larger portion of the relatively smaller pie.

Another fantastic question that the other contributors on this blog asked was what about the Japanese and Korean car manufacturers? I agree that they are fundamentally stronger than Ford. But how close of a substitute are these manufacturers? They may make cars but they do not make American cars. That is the key term here: 'American Cars'. Americans have strong national pride and are likely to buy American. Take a look at this article: http://voices.washingtonpost.com/economy-watch/2009/09/ford_august_sales_surge_212.html?hpid=topnews. Ford sales increased by 17% but Toyota had a significantly lesser increase at 10%. The Prius is superior to what Ford has to offer in green cars yet this superiority was not shown in the raw numbers. I believe that the 'buying American' effect is in play here.

This concludes my first investment idea. I would encourage all of you to read this entry in the same manner as how a skeptic would. Question the logic behind what I have to say and leave comments. I will attempt to come up with a counter argument. Or you could just make more sense than I do.