With markets turning lower at the prospect of a larger impact of the coronavirus (Covid-19), Ford Motor Co. (NYSE: F) has played its part in the downturn of the Dow Jones industrial average. It’s not to say that Ford stock has not suffered like the rest of the Dow (it has), but there could be more problems on the horizon for the American automaker after this is all said and done.
Historically, Ford has been a solid barometer for American manufacturing and even a top pick among Wall Street analysts in years past. Recent events have seemingly positioned this once champion of American muscle and engineering into a corner.
China may be on the forefront of most investors’ minds, with the outbreak of the coronavirus looming over the global economy. The Dow, S&P 500 and Nasdaq have felt this especially, and international markets as well. With global supply-chain and manufacturing concerns in clear view, it begs the question of what Ford can do next to differentiate itself.
Earlier this month, the China Passenger Car Association announced that auto sales nationwide dropped 92% in the first 16 days of February. As this strikes the world’s largest car market, we can only assume crises arise for Ford and rival General Motors Co. (NYSE: GM). The two manufacturers count on China for much of their worldwide vehicle sales and revenue.
Last year’s results from China were horrible, to say the least, for both companies. This February drop will only pile on more issues.
In 2019, Ford and its joint ventures in China sold 567,854 vehicles, a decline of 26.1% year over year. As a result, some analysts believe that Ford’s prospects will never recover in China and that the market is simply too competitive. Not to mention that Ford is too far behind the leaders. Its operating loss in China last year was $771 million.
Ford’s operating losses in China this year probably will be close to $1 billion, which could prove problematic to CEO Jim Hackett’s turnaround plans. This puts Ford at a definite disadvantage when competing in the global auto market.
Riding the Rails
Looking ahead, Jim Farley is set to be Ford’s chief operating officer. In this role, he will run global markets, worldwide automotive operations, Ford Smart Mobility and the company’s autonomous vehicle efforts. In the past year, each of these has been a disappointment.
Before taking this new role, Farley ran Ford’s New Businesses, Technology & Strategy team. There, he was responsible for plans to “capitalize on the powerful forces reshaping the industry.” This included areas where Ford aspired to compete in software development, connectivity, artificial intelligence and electric car development. With the rise of Tesla Inc. (NASDAQ: TSLA) in recent months, Wall Street tends to think that Ford is behind the curve in these areas, particularly when measured against other industry giants.
While there is still much in the works, Ford did not signal what Farley might do with the company’s underperformance in the Chinese market. As previously noted, Ford’s sales in China were less than 567,900 last year, down 26% or so year over year. Compared to leaders like Volkswagen, GM and Toyota, this American auto manufacturer is miles behind.
On the domestic front, Ford issued a safety recall notice for some 227,000 model year 2013 to 2018 vehicles in order to replace a faulty rear suspension part. The recall involves more than 211,000 vehicles sold in the United States and its federal territories, more than 15,000 vehicles sold in Canada and almost 1,400 sold in Mexico.
The vehicles affected were built at the company’s Oakville, Ontario, assembly plant between September 12, 2011, and June 1, 2017, as well as at the Chicago assembly plant between August 25, 2011, and June 1, 2017. Affected vehicles include model years 2013 to 2018 Ford Flex and Lincoln MKT. Other recalled vehicles were model years 2013 to 2018 Ford Taurus Police Interceptor sedans and Ford Taurus vehicles equipped with the SHO Performance Pack.
According to the recall notice, “Affected vehicles that are exposed to frequent full rear-suspension articulation (jounce and rebound) may experience a fractured rear suspension toe link. A rear toe link fracture while driving increases the risk of a crash.”
Ford said it is not aware of any accident or injury related to the faulty part. Owners will be notified of the recall beginning March 2, and the company’s dealers will replace the left-hand and right-hand rear suspension toe links with new forged toe links.
Again, Ford’s future may lie in electric vehicles. However, it may be hard to make progress here with Tesla taking a huge chunk of the market, not to mention other competitors like GM or Toyota offering hybrid vehicles.
Ford’s one major announcement about a next-generation vehicle is its 2021 Mustang Mach-E. Even with 2020 Ford vehicle sales potentially in question, this could be the light at the end of the tunnel. Yet, the electric vehicle is expected to have limited sales, particularly against market leader Tesla. Virtually every other major car company has come to market, or will soon.
With its position in the forefront of the industry and with a major brand, Ford has the chance to stake a claim among other mainstream electric vehicles.
Historically, the Mustang has been known for its body-style and horsepower. To falter on either of these staples could prove hazardous for Ford. On the other hand, consumers looking to purchase electric vehicles while maintaining a macho image could prove to be profitable, if approached correctly. This is a minefield that Ford will have to navigate correctly to make a real impact.