Many news outlets are reporting that Ford is set to report good earnings in 2015. The trucking unit in Kentucky, which was seen as weak throughout the recession and after it, is seeing more investments and product introductions. Ford reported this quarter that its capital expenditure will be higher due to the investments needed to scale up production and meet the demands of dealerships prior to launch of new cars and trucks. The financial results that were reported showed a lower profit number as there were more cash related expenses due to greater production numbers needed for product launches; although profits are lower now the cash expenses should translate into greater earnings in the future. Inventory costs, material costs and increased promotions will cause an increase in the operating expenses.
Another important effect of introducing products was mentioned by the CFO. As older models are less exciting there will need to be some cutback in production of those units. There will be more expenses in the way to discounts and incentives to cut back on inventory. The ramping up production also places operations pressures on the company, as some models will require more production and capacity requirements mean there will be cutbacks in some areas. The company also emphasizes that the auto industry will not be very predictable, although Ford is making good progress, the industry is not a linear trending one at all times. Often, long term investments when capital is more expensive will see returns further down the line. For Ford we can assume that projects that were invested in 5 years ago are now close to producing positive cash flows. This also shows us that long periods of investments are needed and cost of capital overtime may come down reducing the overall expenditure. In Ford’s case the cost of capital must have certainly come down since 2008-09. The report