Having the good fortune of driving semi-decent cars throughout most of my life, I understand the subtle differences between a quality vehicle and one that’s merely posing for the cameras. Therefore, even blindfolded, when I’m in an American car, I know it. The smell of mediocrity is painfully obvious. Which brings me to my thesis on Ford Motor (NYSE:F). If you’re interested in portfolio preservation, you should consider trimming your exposure to F stock.
The iconic automaker is scheduled for an April 28 release of its earnings results for the first quarter of 2020. For earnings per share, analysts are calling for a loss of 12 cents. The estimate spectrum ranges between a loss of 43 cents to a profit of 23 cents on the high end. In the year-ago quarter, Ford generated EPS of 44 cents, a positive surprise of 65.4%.
On the revenue front, analysts have a consensus target of $34.7 billion, with estimates ranging between $33.5 billion and $37.8 billion. In Q1 2019, Ford reported sales of $40.3 billion.
Of course, I’m just mentioning these stats for the sake of completeness. In actuality, the numbers that the automaker releases could be devastating for F stock. What investors are eyeing is whether Ford can at least mitigate some of the damage.
As you know, the novel coronavirus has forced Ford and other automakers to temporarily shut operations around the world. Naturally, first-quarter vehicle wholesale shipments declined 21% against the year-ago level. Even with a dearth of supply, nobody wants to buy anything, especially not big-ticket American junk cars. Not surprisingly, Ford anticipates a net loss of $2 billion in Q1 2020.
Beyond that, the news just keeps getting worse for F stock.
F Stock has no Shortage of Ugly Headwinds
Honestly, I’m not sure where to begin with Ford. With millions of Americans unemployed and many more poised to join them due to governmental aid backlogs, almost every consumer is incentivized not to make major long-term purchases.
Of course, this is a great time to buy a car if you’re in the market for one. For every car owner, the paradigm has shifted because their vehicle’s resale value has taken a sizable hit. In a few months, auto dealers and wholesale auctioneers could be flooded with used cars.
But because of the pervasiveness of COVID-19, confident and well-heeled customers are too few to make a dent for F stock or any automaker investment. Thus, we’re hurtling toward many dark unknowns.
But perhaps the darkest cloud in my view is that Ford has run out of viable markets to sell their cars. Due to cultural and historical reasons, the Chinese consumer has had a distinct love affair with American cars. That has given new life to F stock and rivals like General Motors (NYSE:GM). But now, this narrative is changing at the worst possible time.
Shifting Consumer Sentiment
In January, American automakers disclosed steep losses in China for 2019. At the same time, Chinese consumers gravitated toward European and Japanese car brands. Particularly, Toyota Motor (NYSE:TM) and Honda Motor (NYSE:HMC) ate up some market share.
With Americans more or less rejecting Ford — because they’re crap, if I didn’t make that point clear – China represented the only lifeline for the beleaguered organization. With sentiment shifting toward their rivals, I don’t see how F stock can recover.
Furthermore, you can’t ignore the geopolitical implications. President Trump has repeatedly blamed China for the coronavirus pandemic, which may help his reelection campaign but does no favors for F stock.
Hurting American Consumers to Deliver the Fatal Blow
With nowhere else to turn, Ford must go back home for support. It’s possible they may see some benefit from a surge in patriotism — I’ll give ‘em that. For instance, GM ran a “Keep America Rolling” campaign to bolster consumerism in the wake of the 9/11 terrorist attack.
Aside from a small blip in sales, I’m not sure what other benefit Ford can accrue, though. If businesses fail in the months ahead due to governmental incompetence, the broader economy will obviously weaken. In that case, every dollar must be carefully spent.
Frankly, I don’t see Americans spending their valuable monetary resources on American cars. Deep down, if you’re going to buy a car brand, you need one that can operate well beyond manufacturer’s recommending maintenance schedules because that’s exactly what’s going to happen.
Therefore, if anything, I see Japanese cars winning out in the very long term. I don’t think it’s a coincidence that TM stock’s volatility is far more manageable — and palatable — than Ford’s. Toyota shares reflect a five-year monthly beta of 0.84 while Ford’s volatility measure is 1.36.
Of course, if you’re really dead set on a Mustang or an F-150, I’m sure you can find them for rock bottom prices soon. But as for Ford stock? You should take a pass because we probably haven’t seen the worst yet.
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.