It’s an oversimplification to say that shares of Ford (NYSE:F) are a falling knife. F stock is down more than 50% for the year. And with little to no revenue scheduled for the next several months, there’s no reason for the stock to rise.
On April 2, Ford reported first-quarter sales that were down 12.5%. If that was where sales were in March, you have to figure that the April and May numbers are going to be horrific. Like many things in our current economy, the current malaise is not Ford’s fault. Demand is suppressed because consumers are sheltering in place (and if you’re not, please do).
But Ford is facing two problems. First, nobody knows when demand will come back. Once the economic engine starts back up, consumers will be spending money. But it’s hard to imagine that buying cars will be a top priority. Many Americans are eager to get back to work. But according to Kate Lister, president of Global Workplace Analytics, up to 25% of the workforce may telecommute at least two days a week in two years.
And a larger concern is that Ford was already experiencing softening sales going into 2020. F stock got a lift in 2019 due to aggressive cost cutting tied to a restructuring program. However, as I wrote in September of last year, Ford was racing against a recession. And at that time, most experts were projecting a 12 to 24-month window for a recession. That window is closing fast.
When Is a Bailout Not a Bailout?
Which brings us to Ford’s most dire problem. Ford has gone all in on electric vehicles. But with oil prices in the tank, and gas prices at record lows, it seems that America’s electric future is on hold.
Unless that is, it’s also Ford’s best opportunity. One of the narratives that emerged from the financial crisis of 2008 was that Ford did not accept a bailout. In the literal sense of the word, that’s true. Unlike other automakers including General Motors (NYSE:GM), and Fiat Chrysler (NYSE:FCAU), Ford did not receive any money from the TARP program.
But Ford did receive money from the federal government in the form of a special low-cost loan program. This $25 billion program was intended to promote the development of advanced technology (e.g. electric) vehicles that would be made in the U.S.
However, although the program was established by the Bush administration in 2007, it wasn’t funded until 2009 when the new Obama administration was ushered in. At that time, Ford asked for and received $5.9 billion dollars as a loan.
Beware a Government Bearing Gifts
That loan came with a significant amount of strings attached. Ford made a major investment in electric vehicles, pledged to make more fuel-efficient engines (based undoubtedly on federal guidelines), and hybrids. They also announced they would convert two plants dedicated to truck production to produce cars.
Which brings me to a potential opportunity for Ford and F stock. Ford may be too important to fail. If the company fails, it is an indictment against the idea of government picking winners and losers. Because it’s clear that Ford was producing cars that fit the profile of what the government wanted the company to produce.
Will Ford Need an Assist from the Government?
It’s too early to tell. F stock has taken the short-term hit from the company cancelling its dividend and draining the entire $15.4 billion it had available from two credit facilities. Those actions and the nearly $35 billion in cash and cash equivalents the company had at the end of 2019 should help the company get through several months without taking more drastic steps.
But every day that passes without a clear resolution of when our national sheltering will end is time Ford does not have. The venerable car maker finds itself with a backlog of cars that the government asked them to make. The future of American automobiles will be electric. But with household incomes being wiped out at an alarming rate, it’s clear that future is further away than it was just two months ago.
This time around, the government may need Ford as much as Ford needs the government. But that doesn’t mean you should need, or want, F stock in your portfolio.
Chris Markoch is a freelance financial copywriter who has been covering the market for over five years. He has been writing for InvestorPlace since 2019. As of this writing Chris Markoch did not hold a position in any of the aforementioned securities.