Seemingly unmitigated in its spread, the coronavirus outbreak has moved from China and begun to devastate the rest of the world. Logically, one of the biggest victims has been Ford (NYSE:F). With automotive supply chains sharply disrupted, F stock has been on a downward slide since the beginning of this year. To my mind, Ford risks complete implosion unless the federal government cares to step in.
Now, I’m just a regular investor, so my opinion doesn’t matter more than anybody else’s. Your best is as good as mine. But it’s always worrying when a company’s executives — who are trained to toe the corporate line in all circumstances — admit gloom within the boardroom. In a CNBC interview, incoming COO Jim Farley stated bluntly, “I can see it on the face of my colleagues and it takes me back to about 10 years ago.”
Although I’m somewhat speculating, that look Farley is referring to is probably due to the impending implosion of F stock. When the interview came out on Feb. 26, shares were a little below $7.50. Last week, they closed just above $4.30. However, I don’t think this is the end of the volatility.
Unfortunately, Ford was already a badly exposed automaker that has now run into one of the worst economic crises in American history.
In my opinion, the chances for F stock to come back are minimal at best.
Big Bet on China Didn’t Pay Off
After the golden age of American automobile manufacturing faded — which President Trump would probably remind you was due to the Japanese — Ford failed to resonate with its domestic consumers. With rivals like Toyota (NYSE:TM) and Honda Motor (NYSE:HMC) taking greater share in the U.S., Ford began a slow descent into mediocrity and irrelevancy.
However, F stock had a lifeline: the burgeoning economy of China. For reasons both cultural and historical, Chinese consumers love American cars. Better yet, this is a market that the Japanese can’t compete in, due again to the same cultural and historical reasons.
Unfortunately, our deep-rooted relationship with China has led to national security concerns, which Trump felt obligated to address. Perhaps unsurprisingly to you, this developed into a vicious trade war.
Geopolitically, there’s an argument that this was necessary to support American foreign policy interests. But it came at a great cost to the Chinese economy and subsequently, F stock.
The irony, of course, is that Trump pursued the trade war to bolster his “America First” ideology — and what more iconic American company is there than Ford? — yet this very action set the stage for Ford’s present vulnerability.
Today, neither the U.S. nor China is in any mood to buy cars.
Domestic Market Will Crater F Stock
Next year, much finger pointing will erupt over which political party was most responsible for our coronavirus outbreak. In the meantime, our economy will take a sizable hit.
Sadly, we have a worst-of-both-worlds scenario with the virus. Because we failed to adopt necessary measures early on, the outbreak is careening out of control. In response, multiple city and state governments have ordered mandatory stay-at-home orders. But as Italy’s crisis shows, locking down when it’s too late has relatively very little effect.
Thus, we’re left with an economic hard-stop and an increasingly sickened population.
Eventually, we will overcome the coronavirus. But when we do, the American consumer will be extra careful in how they purchase. According to some estimates, millions may lose their jobs over a short period. If they want to buy a car, consumers will choose carefully.
However, middling reliability issues that have plagued Ford – which colloquially stands for “fix or repair daily” – will haunt the company. To be fair, Ford isn’t the worst brand for reliability. However, it’s far from the best.
In troubled times, consumers absolutely need reliability. Ford has never been able to consistently deliver that, which hurts F stock.
A Return to China Won’t Do
Once things settle down with the pandemic, Ford will obviously look back to the China market for help. This time around, they’ll probably find closed doors.
For one thing, whatever goodwill developed during the phase one trade deal has evaporated. Let’s be fair: both countries have hurled accusations and conspiracy theories at each other. But President Trump’s insistence on blaming China for the present crisis will not go over well for desperate American companies.
There’s an old saying that he who owns the gold makes the rules. Well, this century’s version may well be, he who owns the supply chain makes the rules. And here’s a hint: that owner isn’t us.
Furthermore, China’s consumer habits in many ways mimics our own behaviors. This too is negative for F stock. With the popularity of ride sharing stymieing millennial car ownership, Ford’s domestic ambitions have been badly muted. But it’s now the same thing that’s happening in China.
In other words, Ford must compete with the Japanese and the Europeans mano-y-mano. And with electric-vehicle makers like Tesla (NASDAQ:TSLA) skyrocketing in popularity, Ford will be left grinding its gears until it’s retired for good.
A former senior business analyst for Sony Electronics, Josh Enomoto has helped broker major contracts with Fortune Global 500 companies. Over the past several years, he has delivered unique, critical insights for the investment markets, as well as various other industries including legal, construction management, and healthcare. As of this writing, he did not hold a position in any of the aforementioned securities.