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Ford Motor Company (F) Defends Sedan Cuts at Shareholder Meeting

Wayne Duggan

Shareholders questioned Ford Motor Company (NYSE: F) executives at the company's annual meeting on Thursday, wanting to know why the company announced it will cut its North American sedan lineup by 80 percent. Management defended the decision, and analysts say it was the right move for Ford's bottom line.

In April, Ford announced that over the next few years, the company will be cutting its North American car lineup down to just two models -- the Mustang and the Focus Active crossover. On Thursday, investors expressed concern that Ford seems to be shifting away from its most fuel-efficient options just as oil prices are hitting three-year highs.

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CEO Bill Ford Jr. says Ford is focusing on long-term shareholder returns. "In the future ... customers will have propulsion options that essentially don't give them the fuel penalty that they would have had in the past," Ford says.

Ford has announced that it will be investing $11 billion in developing electric vehicle models through 2022 and says it plans to launch 16 battery electric vehicles and 40 total EVs with a range of different hybridization levels. Ford has also said it plans to launch its first fully autonomous vehicle for commercial use in 2021.

Ford announced better-than-expected numbers for the first quarter of 2018, but the stock remains down more than 10 percent in 2018 as investors worry that the auto cycle has peaked and Ford has fallen behind its competitors in developing next-generation auto technology.

This week, Ford investors got more bad news when the company announced it has halted production of its most profitable model, the F-150 pickup, following a fire at Ford's Dearborn Truck Plant. Ford said the fire will adversely effect near-term financial results, but the company reiterated its full-year earnings per share guidance of between $1.45 and $1.70.

Morningstar analyst David Whiston says Ford cutting its North American sedan lineup was a bold but smart decision.

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"We think this is the right move as U.S. industry sales each month are typically now nearly 70 pecent light truck and Ford's U.S. sales mix last year was 77 percent light truck," Whiston says. "It makes no sense to keep wasting money on sedans that are commodified across the industry and making little to no profit for Ford."

Morningstar has an "undervalued" rating and $14 fair value estimate for F stock.

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