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Ford (F) Plans to Share US Plants to Cut Operational Costs

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Per AP, Ford Motor Company (F - Free Report) will allow German automaker, Volkswagen AG to manufacture vehicles at its U.S. plants. Currently, the companies are in advance talks about the potential alliance.

The proposed collaboration would permit Volkswagen to use Ford’s unused factory capacity in the United States. This will allow Ford to preserve its plants, which otherwise are not used at their full potential as the company reduced production of its less-selling vehicles. Apart from sharing plants in the United States, the collaboration will also strengthen this Detroit-based automaker’s presence in Europe, with Volkswagen sharing its platform. Sharing of U.S. factories and platform in Europe will help Ford to partly offset manufacturing costs, which are already swelling, owing to increased investments for technological developments and the production of enhanced version of SUVs and pickup trucks.

In fact, high costs related to manufacturing compelled Ford to balance production at its U.S. plants. The company intends to reduce shifts at its Michigan and Kentucky plants beside relocating approximately 1,150 workers to other hubs. Further, Ford will shift workers from its Louisville factory that manufactures slower-selling Escape and Lincoln MKC SUVs to another plant that produces top-selling Lincoln Navigator and Ford Expedition SUVs.

Ford Motor Company Price and Consensus

 

Apart from reducing shifts and relocating workers, Ford might also lay off around 25,000 workers per a Morgan Stanley analyst. The move will be in sync with its restructuring plan and remain at pace with changing trends in the auto market that includes electric and self-driving vehicles.

Over the next three to five years, the company will pursue its restructuring efforts that can cost approximately $11 billion. The restructuring plan might force Ford to take a few tough decisions, which in the long run might lead to an enhanced cost structure of operations. Reducing operational costs will assist the company to balance costs related to raw materials and product development. This, in turn, will improve Ford’s profit margin.

Price Performance

Over the past six months, Ford’s stock has lost 2.7%, underperforming 9.9% increase recorded by the industry it belongs to.

 



Zacks Rank & Key Picks

Ford currently carries a Zacks Rank #3 (Hold). A few better-ranked stocks in the auto space are Toyota Motor Company (TM - Free Report) , Cooper Tire & Rubber Company (CTB - Free Report) , and General Motors Company (GM - Free Report) , each carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Toyota has an expected long-term growth rate of 6%. Shares of the company have increased 0.6% over the past three months.

Cooper Tire has an expected long-term growth rate of 4%. Shares of the company have rallied 8.5% over the past three months.

General Motors has an expected long-term growth rate of 8.5%. Over the past three months, shares of the company have gained 6.2%.

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