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Still Bearish On Ford, Not So Much On General Motors

Jul. 05, 2017 9:18 AM ETFord Motor Company (F), GMHMC, TM50 Comments
Freedom in Retirement profile picture
Freedom in Retirement


  • Auto sales have been declining since last year.
  • Ford sales fell more than GM's.
  • I hope that the current Administration does not renegotiate the NATFA. Otherwise, automakers will pay the consequences.

Exactly a year ago, I wrote an article suggesting that investors reconsider their long positions in General Motors (NYSE: NYSE:GM) and Ford (NYSE: NYSE:F). It is time to measure the results and to reassess my view on both stocks.

The performance of my sell recommendation.

Under the capital asset model pricing and for the last 12 months, Ford should have returned 25%, and GM should have returned 31% considering that the market returned 22%. I took the 10-year Treasury bond at an average of 2%. While investors can argue that a long position in GM was profitable because it generated a 23% return, the reality is that GM underperformed the S&P 500. Ford was a disaster because it had a negative return.

In short, investing in the S&P500 was better than investing in Ford or GM on a risk-adjusted basis. The only exception was if an investor was a risk-neutral who seeks return only.

The auto sales outlook

The near future of auto sales is gloomy today. Since 2016, auto sales have been declining on a monthly basis YOY. Moreover, there are no indications that the negative trend will reverse. I believe that one of the reasons for declining car sales is the sustained low gas prices. If consumers can get cheap gas, fuel economy is not a priority. Therefore, I expect a weakening demand for cars and a stronger demand for SUVs and trucks. The World Bank projects relatively stable crude oil prices for the foreseeable future. Therefore, I expect a demand shift from cars to SUVs and trucks.

The increasing interest rates may also be impacting auto sales to some degree. If interest rates continue to rise, fewer consumers are willing to finance new vehicles. Instead, consumers have the option to pay for a used car in

This article was written by

Freedom in Retirement profile picture
In 2015, I predicted the crash of several oil and gas companies. I did the same thing in 2019, using my modified DuPont formula. Readers criticized me, and Seeking Alpha did not find any value in my articles. I guess that the market is the final judge.My best recommendation for everyone is: Be careful who you follow in the platform. Some authors seem like they know what they are talking about. Once you check their performance, you realize that you could do better flipping a coin. Also, do not use Tipranks to check their performance, as it is biased. Check their articles from one or two years ago and see how they have performed.

Analyst’s Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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Comments (50)

I agree on NAFTA but the idea that this is all about racism is in the author's mindset, I think. Trump takes in the world and criticizes all the nations running huge trade deficits, including Germany, a supposed "white" nation (or is it a nation without color?) Racism is all around us, especially among those preaching about racism. On the other hand, the Trumpster is probably wrong about NAFTA and the blaming of others for US problems.
Freedom in Retirement profile picture
Explain to me the connection between my article and racism... Seriously, you are twisting ...idk what... but you get a very different idea.
ijeff profile picture
Some people want to see racism everywhere. Its become a crutch for an otherwise weak argument. And, its not the only one in these politically correct times we live in.
Freedom in Retirement profile picture
I agree ijeff!
Tdot profile picture
"Ford and General Motors produce many of their vehicles in Mexico, and President Trump is promoting the idea of renegotiating the NAFTA. If this event occurs, it will affect automakers who produce cars overseas." - Robinson Roacho, Author.

NAFTA is North America. North America is Canada, Mexico, and the US. Which of these three trading partners are considered "overseas"? Is the Rio Grande (aka Rio Bravo) a sea now?

NAFTA as it stands encourages automakers to keep production of vehicles for North America in North America.

Trump's ignorance of the simple fact that Mexico is every bit as much a part of North America as the US and Canada, and this bizarre perception that Mexico is "overseas", or else maybe part of Central or South America or something because the people have a darker skin tone and speak Spanish like the rest of the "south of the border" clans, is shameful and embarrassingly racist.

In any case, if Trump tears up NAFTA and puts unaffordable tariffs on cars built on the south side of the Bravo, well guess what. Ford is already moving production to Asia, apparently in anticipation of 3.5 more years of embarrassing stupidity and stunningly ignorant decisions and statements from the white house.
dborn profile picture
Just released. Nice, I get Ford news before it hits the news wire.
Ford June Sales Record in China; Up 15 percent Year Over Year
Freedom in Retirement profile picture
I can argue that the main car sales are down 17% YTD. at 360k units. JMC sector is up 18%, but it is only 143k units YTD. The 97% increase in Lincoln hardly means anything since it is only 24k units.
starcorral profile picture
Must be a lot of markup in mid level pickups at GM. Advertising12- 13 K off seems an awful lot.
Two issues at play Star. First GM continues to exploit its cost advantage over Ford and secondly it is classic bait and switch marketing. There are targeted models that get crazy rebates while other models get very little. It is very difficult to execute at the dealership level and it causes a fair amount of customer dissatisfaction.
Considering GM has made profitability in the U.S their bread and butter and has started pulling the plug on international markets, I would hope that they are outperforming Ford here. It is a rather myopic view and could have long term negative consequences on GM's business model, although I think they will both be successful in their own right and am long both companies.
RickJensen profile picture
Two bulls are standing at the top of a hill overlooking a pasture..
Ford is the "old" bull.
Because with age and experience comes wisdom.
Freedom in Retirement profile picture
Agreed, Lehman was 150 years old with lots of experience and wisdom. So many other companies that have come and gone.

I am not saying that Ford will be gone. I am saying that your phrase has not applied lately. Disruptive innovation is a danger to large companies.
RickJensen profile picture
Expanding into sub-prime is not wise. It cost them everything. They never saw the bus that hit them.
F read the fine print, mortgaged itself the hilt. And they made it through. Only auto company not given a bailout. (That includes European and Japanese).
Freedom in Retirement profile picture
Lehman brothers was the first long company to fail?
dborn profile picture
You would own Ford because it is a good company that has been around longer than the majority of companies in the world and you too. It has been through depressions, recessions, wars and did not require government bailouts. It is not owned buy a government that killed our grandparents or great grandparents in WW1 or WW2 or try to destroy our nation to make it their own. It is a great US company and represents a Country that stands for freedom. Not like Germany, France, Japan or China.

I am a loyal American and I do not care where Toyotas are made to make them look good. The profits still go back to Japan., They killed our people. To this day we must defend Japan because they can't do it themselves. All they can do is steal our economy. They can't defend themselves from China that builds islands in their waters and begs our help from North Korean threats. I respect our great nation not Countries that hate us and only take, never give back.

Ford is beat down down because people of your age want the latest get rich quick techs and most of them will fail. You were not around to see or gain respect for what made the USA what it is today. You did not get much from history classes either I guess because you had no skin in the game.

The get rich quick stocks are also get poor quick stocks.. TSLA as an example. When companies like Ford are beat down for no reason people look far a safe place to put money as the hyped over bought companies drop. Ford is one of those companies.

Only other reason to write for SA? You are in it for the payment SA pays to write it's controversial articles. Thank you for your advice but no thanks. I will keep my Ford. Many new vehicles are coming out and problem with that is people wait to buy the newest models.
You are a little late. Dozens of people before you have made the same argument and told people to sell and buy under $10.00. That was real sound advice. I can't believe the SEC allows people that are not licensed to give investment advice for pay. Most of what is written here is designed to manipulate stock price which is illegal too.

I believe I gave more good reasons to buy and hold F than you did to sell and I wasn't paid a penny for it. Part of my reason to hold Ford is already a reality. It's called pride in America.

The rest of my reward will come soon. 2 Divs to come for 2017 and one special Div in January. 7% in divs with special div per year and stock price will go up another 10% at least in the next year with no problem.
July 3rd was a good sign. The short trading day the stock was up 4%. The shorts were not working that day to drive it down.They had the day off. The shorts will have to cover 125 million shares. Look for F to climb as each of the ex div dates come near. A total of 3 ex div dates to come before the end of January. Why would a short want to pay 3 divs on a stock that has clearly hit bottom and moving up?
Freedom in Retirement profile picture
If you believe that my article manipulates Ford... I just feel sorry for you. If you have Pride in America, you should manifest and ask Ford to make their cars here :D and see how people will pay for it.

Pride in America while investing in a stock that manufactures its products overseas... There seems to be a slight disconnect imo.
Ford has 3 out of the top 10 vehicles in the "most American" list. http://bit.ly/2tNJGsN
Robinson, Ford has more U.S employees then any other manufacturer including GM. They will still be the largest U.S employer even after the Chinese Focus. GM beat them to China by a long shot. As an investor I need Ford to be competitive and make the right logistical decisions to optimize profits. Nissan has a whopping 40% of their NA offerings manufactured in Mexico. What do you mean about 30 years old and not wanting to own Ford? Ford has a history of sling shooting out of share price slumps and there is good chance they will again. You can collect 5.2% (not including special dividend) while you wait. Also in your analysis on the cars you might want to add that GM finished the month with a 100 day supply of vehicles as opposed to Fords 70 days. Also while using static Mustang sales as a negative example you forgot to mention that the Mustang is the best selling sports car on planet earth. I don't understand that after you made the case for strong SUV and truck sales, due to continual low oil prices, which play into the domestics wheelhouses, you don't see a plausible reason to invest in them? When then? Aren't you supposed to buy low? Do you think the people who paid 385.00 a share for Tesla a week ago feel good about it today? Ford and GM make money...lots of it. They will need it to be the next tech and growth stories. They are not sitting on their hands. You might want to buy some.
dborn profile picture
Barons is calling for this to be the turn around for Ford and stock prices to go up from here. A better investment than GM. I will take Barrons advice. Ford is shorted 125 millions shares. Read these articles for what they are. People looking to buy Ford to go long or cover their short. In any case people want you to give up your shares so they can have them
Freedom in Retirement profile picture
Good luck following Barons advice. I am not looking to buy Ford nor to cover my short. I do not have any position. I am 30 years old. Why would I own Ford?
125 million shares is nothing for a stock with a float of 3.8 billion shares. Also, why so much faith in Barrons? Have their past recommendations been particularly accurate?
ijeff profile picture
For a 30 year old? I'd agree, there is no reason to own Ford. For a dividend seeking retiree it doesn't look bad.
I cannot see the bear case for Ford.
Freedom in Retirement profile picture
Can you see a bull case for Ford, or just neutral? Besides the fact that Ford has been lagging the stock market for the past 5 years. Do you see a bull case in the fundamentals?
This is a very US-centric review . Sales are not showing the same decline around the world ; China for example , where GM makes a lot of money . Nevertheless the conclusion of the review may be correct for the short term since short term share price is dictated by sentiment , not fundamentals , and the majority of GM and Ford shareholders are in the US . Longer term they both may turn out to be very good investments and in the meantime you have the dividend .
Freedom in Retirement profile picture
Hi Autman,

Yes, this was only focused on US sales. I will soon write another article with international sales.

Overproduction and big incentives are what nearly killed the automakers before. Let's see if they learned.
Goat this is the industry that never learns. Incentives are at anytime all time records and sales are pretty near record levels. The bad behavior will accelerate once a real downturn sets in and margins will get crushed as they always do.
Where is the chart?
mfranks4172 profile picture
GM has been discounting their cars to keep their numbers up higher. Saw a commercial for a GM car with 26% off MSRP... ford seems to be not going for the higher discounts to move their cars...
Here are some numbers Mfranks

ALG estimates average U.S. light-vehicle incentives rose 9.7 percent to $3,550 in June from a year earlier. The biggest spenders on deals per new vehicle last month were Fiat Chrysler ($4,389), GM ($4,361), Nissan ($4,148), Ford ($4,157), VW ($3,460), Kia ($3,384) and Hyundai ($3,259), ALG estimated. (See incentive chart below.)

The bad behavior is widespread as it always is at this stage of the cycle
Estimates are just that estimates and they have not been very accurate either. Lets look at some facts. Who has had the largest drop in car sales? I think it is Ford and they have said they will not give out big incentives. And that is why sales have been lower. I drive past 6 or 7 dealerships when I go to work. It is the foreign cars that are advertising big incentives on cars on the lot and also on the windows of the dealerships. And when you look at their sales they don't have the big drops.
J38765. How do you square those numbers with what Ford is saying in this Q&A exchange in their June sales call?:


Aileen Smith
Analyst, Merrill Lynch, Pierce, Fenner &
Smith, Inc.
Good morning, guys. This is Aileen Smith on for John. First question, of the $1,800 improvement you noted for
average transaction prices in the month, can you bracket how much of that is mix driven versus the offsetting factors from more aggressive incentive activities? Is it fair to say that the positive impact of mix is greater than the
total $1,800 increase for ATPs?

Mark R. LaNeve
Vice President
US Marketing, Sales & Services, Ford Motor Co.

I can't do that calculation, I could tell you that much of the $1,800 increase is mix driven. It's a combination of
vehicle mix, great Explorer month, great F150 month, great Super Duty month. And then within the vehicle mix, a
very high, as I mentioned in my comments, a very high
series mix and customers choosing some of the latest
technological features. Our incentive spending was flat month to month so that wasn't a deterrent in the positive
pricing results and we were up only marginally year
over year on incentives as well.
littlecubbie2019 profile picture
F is better than Gm in my opinion because f is selling more high margin vehicles. So yes sales are down but not for the profit makers.
mfranks4172 profile picture
I think he forgets the high inventory GM has to offload.. their shutdown for their trucks... ford will take those sales over... ford is in a better place
He mentions the lower car sales but not the higher SUV and trucks sales for Ford. He also fails to mention the slowing truck sales for GM. No doubt GM will be offering greater and greater incentives to off load this big inventory of trucks they have. Which means less profits in Q2 and most likely Q3 as well.
sorry for the repeats. copy/paste was going crazy.
Freedom in Retirement profile picture
I am sorry. I made a mistake. It should say "It interest rates continue to increase, you should expect auto sales to continue declining. I am sorry. Let me correct that.
Tdot profile picture
So low interest rates drive artificially high consumer demand for automobiles? People are buying excessive numbers of cars because the interest rates are low?

That seems a little far fetched as hypotheses go.

The more likely and sensible scenario would be that if interest rates increase, people will might spend less on upgrades anbd options on the cars they buy or lease. They would be looking to keep monthly payments about the same and on budget.

So perhaps they skip the high technology "autonomous assist" package that they really don't want or trust all that much, and save a few thousand on that and the massaging seats and glass roof and such.

Of course that still might mean a drop in revenues and profits for the automakers on the "mix" side, but not necessarily on sales, per se.
Freedom in Retirement profile picture
Fair enough tdot. I can see your point of view.
the interest rates continue to decrease, you should expect auto sales to continue declining.

Analyst coverage

the interest rates continue to decrease, you should expect auto sales to continue declining.

Analyst coverage
"If the interest rates continue to "decrease", you should expect auto sales to continue declining."

Don't you mean "increase"?
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