Ford Takes Advantage of Car Allowance Rebate System

Ford Motors (NYSE: F), along with other major automakers, reported sales results from the month of July, and in Ford’s case it was the first increase since November 2007. The company delivered 165,279 vehicles last month compared to 161,530 a year ago. The much discussed “Cash for Clunkers” program offers car buyers a government subsidy for more fuel efficient cars. The program has been quite successful in luring buyers to the car lots, as the first billion dollars was used in just a few days. Apparently the program has incentivized potential buyers, but as the quote from Bloomberg suggests, that could slow future sales after the program ends.

Clunkers’ Effect

The sales last month from the federal incentives may result in fewer buyers later this year after the program ends, George Pipas, Ford’s sales analyst, told CNBC today.

A similar program in Germany won’t sustain sales growth into 2010 as those incentives expire, said Matthias Wissmann, president of the German carmakers, today at a Frankfurt news conference. Germany’s car market expanded by 26 percent from a year earlier in the first half, propelled by increases of at least 40 percent in May and June.

U.S. Transportation Secretary Ray LaHood told C-SPAN yesterday that the Obama administration will continue the program until the Senate acts this week on more funding. The program recorded 80,500 sales through Aug. 1, an administration official said.

Ford, having not taken direct government assistance in dealing with the downturn over the last year, has established itself as the most capably managed U.S. automaker. Ford’s sales for July were up 2.3% which was an industry best, and its performance was much better than than the 5% decline that analysts had expected. The other U.S. automakers showed major declines from a year ago (GM down 19% and Chrysler down 9%), as both are emerging from recent bankruptcy. The Ford Focus has been the best selling car under the government’s program, as gas guzzling SUV’s and trucks are not eligible.

Ford stock is getting a nice boost today as shares are up 6% with an hour left in Monday trading. Even though the company has performed far better than its competitors in handling the downturn, we are reiterating that shares are Overvalued at the current price. Sales in the first half were simply terrible and a fair amount of improvement has already been priced in for the second half. Coming into the day, consensus analysts estimates have already baked in a 10% improvement from the first half to the second. The cash for clunkers is helping automakers increase sales for the time being, but for how much longer is unknown. Also, another unknown variable is the effect this will have on demand once the programs is over. The good news is that this program has more people interested in buying a car again. However, given the fact that Ford shares are back to pre recession prices even though sales are predicted to decline 26% and earnings are still firmly in negative territory, we cannot recommending buying shares.

Ford Takes Advantage of Cash for Clunkers

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