Seeking Alpha
Long/short equity, contrarian, special situations, wild cards
Profile| Send Message|
( followers)  

That sure is what the media seems to make you want to think.

Incentive selling! Polar vortex! A 2007 repeat! Dogs and cats living together! Mass hysteria!

Coming off of its best year in the company's history, Ford has done anything but start the new year with a bang. It's big brother GM (NYSE:GM) is right in the same boat.

Ford (NYSE:F) has had a rough last three months, shedding a bit more than 10% of its value after having a historic year for growth in 2013.

(click to enlarge)

Lately, the biggest concern from analysts is whether or not Ford and General Motors are going to engage in an incentives war that sees them cannibalizing each others business and bring the auto industry as a whole to a massive slowdown.

CNBC reported:

After January auto sales took a sharp dip that may have been impacted by more than just the cold weather, there are now a growing number of vehicles piling up on dealer lots across the country. That may force manufacturers to sharply increase rebates and other incentives to move the cars.

"Rising inventory levels combined with several more waves of bad weather will result in a short-term spike in incentives," said Eric Lyman, vice president of editorial and consulting for ALG, formerly known as the Automotive Leasing Guide. "The danger is that this could be the beginning of an escalating arms race for market share."

According to ALG data, the number of days it takes to sell a vehicle after it rolls on to the typical U.S. dealer's lot has been increasing. It's now up to 59 days - more than the average 51 "days to turn" in January 2010, though down from 68 in August 2009 - as the auto industry plunged into its worst recession in decades.

In all truth, I can't say that I'm concerned. Incentivized selling, while definitely becoming more pronounced during the slow start to this year, is nowhere near the levels that it was at in 07-08, when the U.S. automakers hit catastrophe.

Additionally, the weather is not to be overlooked here. Although it is true that the weather has become an "excuse" of sorts for companies reporting, there's a legitimacy behind it - people simply don't want to leave the house when it's so cold out that it hurts your bare skin. Autonews.com reported on the difficulties that both customers and dealers were having with the weather:

The polar vortex that blasted through much of the United States last month made selling cars as difficult as moving the snow mounds that rose up around David Martin's dealership near New Hampshire's Mt. Washington.

"We literally have vehicles frozen to the ground," said Martin, general sales manager of Berlin City Auto Group in Gorham, which sells Ford, Dodge, Chrysler, Honda and Toyota models. "We needed five guys to cut a Corolla out of the ice so that a customer could buy it."

We're seeing these same effects on all the other major sectors like housing and retail. Like those markets, it's also important to note that the auto market is a cyclical market by nature.

While there is definitely a point that auto makers are going to have to exercise some discipline with how and when they bank on incentive selling, I by no means think that this small correction in the auto market is worth worrying about.

In my last article about Ford, I noted that I remain extremely bullish, based on the company's sales overseas and a potential bullish technical pattern starting. Put simply, I think the European news for both Ford and GM has yet to catch up with each company's share price. I expect it to do so in the coming weeks.

I will note again, however, that when betting on overseas economies, there's always risk. Ford continues to operate at a loss in Europe, but that loss is narrowing.

In my last article, I offered a price target of $18.50 by the end of 2014 for Ford.

Ford also has plans to cut off underperforming parts of its business as it gets ready to close up shop in Australia due to high costs and currency fluctuations. Renewed focus is going to be on China and Europe, where Ford plans to be profitable in the coming year.

With global expansion on the horizon, it's in no way too late to invest in Ford at current levels. I continue to add to my Ford position as it continues to pull back and will likely do the same with my GM warrants if the opportunity arises.

Source: Signs Of Trouble For Ford?