As an American icon, many investors had high hopes for Ford Motor Company (NYSE:F). F stock has largely been range-bound since 2013. If any candidate could break out of its rut, you’d think it would be Ford. After all, we have a president who largely ran on rejuvenating our industrial base and renegotiating so-called “bad deals.”
The patriotic rhetoric worked for a while. Between the end of Election Day until the close of 2016, F stock gained 5%. From this year’s opener to mid-March, Ford put up a nearly identical performance in the markets. However, reality soon kicked in.
Investors looked at the hard data and no longer felt comfortable with the automotive industry’s forward guidance.
It wasn’t just Ford stock that felt the pain. Domestic rivals General Motors Company (NYSE:GM) and Fiat Chrysler Automobiles NV (NYSE:FCAU) absorbed massive body blows. Japanese automakers like Toyota Motor Corp (ADR) (NYSE:TM) and Honda Motor Co Ltd (ADR) (NYSE:HMC) also got caught up in the “spring cleaning.”
Under normal circumstances, any loss of business for Japanese cars is a win for Ford. According to Statista, the top five best-selling cars in 2016 were all Japanese brands. The Ford Fusion came in sixth place at 265,840 units sold. Although impressive, it’s nearly 123,000 units shy of the number-one-ranked Toyota Camry.
The unusual problem for F stock is that its Japanese competitors are getting hit too hard. This dynamic indicates that Americans aren’t buying cars at all, irrespective of national origin.
Ugly Auto Sales are Disrupting F Stock
Click to Enlarge The first indication of serious trouble comes from the U.S. Bureau of Economic Analysis. In March, only 389,000 domestic vehicles were sold. Such results were first seen in the immediate run-up to the 2008 global financial crisis.
Even worse, pronounced economic crashes during the 1970s through the 1990s never pushed monthly domestic auto sales below the 400,000-unit threshold.
But Japanese and European cars are getting no love, either. Also in March, just under 118,000 foreign vehicles were sold. The last time sales figures were this bad was during the mid-1990s. As mentioned previously, this is not a positive for F stock. If American consumers are not purchasing overwhelmingly popular Japanese cars, they’re certainly not shifting demand to Ford and the domestics.
We can say that with a great deal of confidence due to the auto inventory-to-sales ratio. In the latest reporting month, the ratio hit 3.13. Excluding the events of the 2008 collapse, this is the highest the ratio has been in modern times.
The secondhand market also confirms bearish trends in the automotive industry. The consumer price index for used cars and trucks has actually been declining since the end of 2013. Unfortunately, pessimism is everywhere, whether you’re looking at new car dealers or dedicated used car distributors.
Again, nobody is buying cars, be those cars new, old or Japanese. This has very poor implications for F stock. At the risk of sounding unpatriotic, it’s doubtful that Ford is the company to make automobiles great again.
Everything About Cars Has Changed
It’s not that Ford stock is inherently a bad investment. Their core challenges are factors that are outside their control.
First, the automotive industry and the driving culture is shifting towards the electric vehicle a la Tesla Inc (NASDAQ:TSLA). That puts Ford at a disadvantage since their marketing is geared towards machismo — ie. “Built Ford Tough.” But how many people even know how to drive a stick shift these days? I’d guess hardly any. Essentially, what made F so popular a decade ago is now no longer relevant.
Second, Millennials no longer view auto ownership as the status symbol it once was. Experts first noticed this trend a few years ago. Today, those fears are now reality. Through a combination of factors — living situations, cultural shifts, financial considerations — the younger generation doesn’t care for driving. They’ll do it, but not nearly enough to satisfy demand.
Given the deteriorating conditions in the sector, F stock will have to come down in price to be attractive. At the current rate, the risk is that investors will continue to lose confidence. Too many question marks hang over the entire industry, leaving Ford in a tight spot.
As of this writing, Josh Enomoto did not hold a position in any of the aforementioned securities.