On paper, Ford (NYSE:F) seems like a discount. While Ford stock is up over 17% year-to-date, shares have dipped noticeably since this past summer. In addition, over the trailing five-year period, the F stock price has dropped more than 44%. Generally, shares haven’t been this low since 2012.
Most of the time when I talk about American car companies, I’m admittedly negative. So, to ease up on the pessimism, I tried to find anything that would give me confidence in Ford stock. Fundamentally, though, it’s a losing game. No matter where you look, signals flash caution.
For example, one of the most viable arenas for U.S. automakers is China. Due to multiple historical factors, American cars have a social cachet about them. That’s especially true for General Motors’ (NYSE:GM) brand Buick. Stereotypically an old person’s car stateside, in China, it’s the equivalent of a European luxury brand.
But with trade war tensions and increased Chinese regulations, Buick may not be able to sustain its growth there. And longer term, the F stock price also faces pressure in the world’s biggest car market. Ford’s sales have stalled in China, while hated rival Toyota (NYSE:TM) — via its joint venture with Guangzhou Automobile (OTCMKTS:GNZUF) — has taken market share in the nation.
As you may know, China and Japan aren’t exactly friends. Therefore, Ford should consistently outperform Toyota in this market. That it’s not suggests further trouble for Ford stock.
And that’s just one country. Multiple reasons exist for avoiding F stock, three of which I’ll discuss here.
A Recession Would Severely Damage Ford Stock
Let’s start with an obvious argument against F stock: No one wants to buy a car, let alone a new one during a recession.
I’m not just bringing up an anecdotal point. According to the U.S. Bureau of Economic Analysis, total vehicle sales have always dipped during or just prior to every recession since the late 1970s.
Since early 2015, car sales have flatlined. Despite all this talk — particularly from President Donald Trump’s administration — that the economy has recovered, the consumer is doing a poor job of demonstrating it.
According to Forbes contributor Micheline Maynard, the pain from the Great Recession may have caused a permanent consumer behavioral shift. Essentially, drivers have learned to make do without that new car smell. They’re also pushing their cars to last longer than auto makers would prefer.
That’s negative for the entire industry, but it truly hurts Ford stock.
Ford Brand Is the Worst of Both Worlds
Here’s the ugly truth about Ford and F stock: Even in an unquestionably positive economic landscape, Ford cars are difficult propositions.
That’s because they are the worst of both worlds. They depreciate rapidly relative to other automotive brands, and they very unreliable. According to a J.D. Power study, Ford is one of the least reliable car companies in America. And partially because of that, Ford is terrible at holding onto its value.
Of course, all new cars depreciate. But with the unreliability and the above-average depreciation rate, astute consumers will avoid Ford. If they make the mistake of buying one, they’ll likely not repeat that mistake after they get fleeced on the resale.
But in a recession, no rational consumer will buy Ford vehicles, with the exception of their heavy-duty trucks. Again, buying a new car is usually not a great idea because of the depreciation. But if something is going to depreciate, you might as well have a quality product.
This logic benefits Toyota. Ford? Not so much.
Product Pipeline Lacks Excitement
But even if Ford somehow overcomes a recession, it has a new threat to overcome. And for once, it’s not the Japanese, but rather, other Americans.
When GM’s Chevrolet brand introduced its 2020 Corvette, it shattered the industry paradigm. For just under $60,000, you can buy a gorgeous, mid-engine supercar that rivals exotics from Ferrari (NYSE:RACE).
Even an American auto-phobe like me has got me looking at my bank account and thinking. On the other hand, what Ford has to compete with the Corvette is the Mustang Shelby GT350. In other word, it’s a Mustang with a body kit and some go-fast engine parts — big whoop.
What I’m about to say next is completely anecdotal. But trust me: If you have 60 large laying around, you’re not buying the Mustang. Thus, even in the subjective realm, Ford stock loses out.
As of this writing, Josh Enomoto did not hold a position in any of the aforementioned securities.