Ford (NYSE:F), which stands for “fixed or repaired daily,” is in a bit of a pickle. Although F stock has finally demonstrated signs of life over the last several sessions, this doesn’t take away from the fact that earlier this year, shares were inching toward double-digit territory. At under $6 at the time of writing, the American icon isn’t very impressive.
As you know, Ford makes cars but of the crappy variety. Over the decades, the company has been in a heated battle with domestic rival General Motors (NYSE:GM) to see which one can deliver the most mediocre vehicles the quickest. In a bull market and with normal relations with China, such a middling attitude didn’t matter. For whatever reason, the consumer came to kill his or her wallet.
In a cynical way, F stock at least had that predictability going for it. But in the new normal, the mediocrity that Ford and other American car manufacturers have forwarded will come back to haunt them.
Admittedly, I’m being abrasive with my language. However, consumer demographic data suggests that what I’m presenting is an uncomfortable truth. In a Statista survey covering three age brackets — 18 to 29 years, 30 to 49 years, and 50 to 64 years – Ford ranked the lowest among young consumers at only 11% market share. On the other hand, the 30 and above category took 13% market share each.
Not surprisingly, it’s a similar trend with General Motors’ Chevrolet brand. But Toyota (NYSE:TM) bucks this trend, achieving the highest market share among 18 to 29-year-olds. In other words, Toyota’s customers will grow with the brand, presenting long-term challenges to F stock.
The New Normal Will Not Be Kind to F Stock
No matter what the circumstance, Ford’s dominance among older consumers is problematic. Let’s face it – if your appeal is mostly toward the 60-plus crowd, you probably can’t depend on continued revenue streams for much longer.
Additionally, Toyota attracting young consumers is a slap in the face to F stock. For one thing, millennials and Generation Z don’t have as much love for the automobile as older generations. But when they do buy cars, they’re going for Toyota and perhaps other (reliable) Japanese brands.
But in the new normal, the upside-down demographics for Ford presents a unique challenge. According to the Manheim Used Vehicle Value Index, secondhand auto sales across all consumer vehicle categories dipped 4.8% on a year-over-year basis from mid-May. Broken down, midsize cars and compact cars saw the greatest negative impact, down 10.8% and 10.7%, respectively.
For F stock, this is significant because Ford mostly sells vanilla “soccer mom” type SUVs, as do most other mass-manufactured car companies. But because of the novel coronavirus’ impact on global automotive supply chains, as well as the extraordinary damage inflicted on the labor market, wholesale car auctions and used-car dealerships find themselves inundated with inventory.
Well, Ford isn’t in the business to sell last year’s model. With new cars inbound, dealerships everywhere have to make way for them. That means you’ll see ridiculous prices on sedans and mid-sized cars, enough so that it will likely deter buyers from considering Ford’s new SUV models.
As I write this, the Wall Street Journal revealed breaking news that Hertz (NYSE:HTZ) filed for bankruptcy. Saddled with $19 billion in debt, this wasn’t much of a surprise. But the company is sitting on a fleet of 700,000 vehicles that will have to go somewhere.
Unusually Tough Road for Ford
Although the Hertz bankruptcy is a headwind for the entire auto industry, some will better weather the storm than others. For instance, the Manheim index notes that luxury vehicles have been impacted the least. Therefore, companies that specialize in that segment should theoretically outperform its proletariat competitors.
I’ll go a step further and say that both Ford and GM are distinctly at a disadvantage here. The rental car industry mostly rents out cheap, high-volume cars that fit into both companies’ bread and butter. Additionally, domestic car brands don’t have the greatest reputation for reliability. Thus, I believe Toyota and Honda (NYSE:HMC) will outperform their American counterparts, though perhaps just barely.
Finally, F stock faces a geopolitical risk with the Trump administration, which is hellbent on holding China accountable for the coronavirus. Unfortunately, the U.S. isn’t in a position to wage another economic war. But if we go down this road, Chinese demand for American cars will surely plummet.
Ultimately, even if you disagree completely with me about Ford, it’s better to wait it out. The auto industry has too many question marks and Ford likely has to answer most of them.
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.