The recent drop in Chinese sales of Ford Motor Company (NYSE: F) vehicles have held back the iconic automaker’s expansion into this huge overseas market. Far in Europe, total Ford vehicle sales in 2019 exceeded one million, with Germany showing particularly strong sales growth. While these two major international markets may appear to offset each other, a closer look shows that all is not quite what it seems in Europe, either.
Ford struggles in China
With 1.27 million Ford cars and trucks sold in China in 2016, the rapid double-digit declines in purchases more recently send a signal of potential problems to those who invest in auto stocks. The fall started quite modestly in 2017. However, in 2018 and 2019, Ford’s sales in the east of the country turned into something akin to a pile-up of half a million cars, at 37% respectively. and 26% bites. Only 567,854 Fords left Chinese showrooms last year, according to Reuters.
The intertwined Chinese economic turmoil and ongoing trade feuds between the United States and China are among the main factors behind the decline. The entire Chinese auto market, not just Ford, is feeling the effects of the recession. 2019 saw an 8.2% year-over-year decline in total auto sales compared to 2018.
Ford claims to be pursuing a “Ford China 2.0” program in response to this drastic sales crisis. The plan includes steps such as tailoring vehicle production to the preferences of Chinese drivers and partnering with Chinese companies to develop and manufacture cars in the region. Ford has announced plans to launch 30 new models of SUVs and cars there by 2022, of which around a third are expected to be electric vehicles.
While Ford speaks big, this complete Chinese makeover project has clearly not reversed the avalanche collapse in sales since its launch in early 2019. Ford claimed in a December report that losses in China were down. ‘about 50% lower than in 2019 in 2018, although actual figures are not available until the release of detailed fourth quarter 2019 results on February 4, 2020. The press release also forecast a further 50% reduction in Chinese losses in 2020, although Ford pointed out that the latter figure does not represent any type of formal guidance.
At this point, however, it is questionable whether the slowdown in sales losses from 37% per year to “only” 26% in one year is in fact due to Ford’s new program. Ford’s sales are so small in China, from 1.3 million to half a million a year, that purchases may simply hit a demand floor below which they won’t drop significantly as long as there is an economy. will continue to exist in China.
Ford’s sunnier and more illusory outlook in Europe
Superficially, in another major international market elsewhere on the planet, Europe, Ford had a positive 2019. In “Euro 20” countries, a Ford Q3 sales report claims total vehicle sales rose 3.1% in the third quarter of 2019 year-over-year. As commercial vehicle sales weaken, passenger vehicle sales have increased. In Germany, sales increased 21.1%, exceeding demand from any other country. Overall, Ford reported 1,020,700 vehicles sold in Europe in the first nine months of 2019. With a quarter still to go when the numbers were released, total sales have likely hit 1.2 to 1.3. million for 2019, matching Ford’s sales in China in the peak year of 2016.
However, beneath that rosy exterior, all is not well in the state of Denmark – or anywhere else in Europe. Despite the growing number of physical sales, the review of Ford’s third quarter 2019 results shows that Ford of Europe continues to bleed money, as it has in most quarters for several years now. Revenue has fallen in each of the last four quarters, starting with an 8% decline in the fourth quarter of 2018 and now showing a decline of 14% in the third quarter of 2019. Profit before interest and taxes (EBIT) was negative for four of the last six quarters, and even in the two positive quarters, was only about $ 100 million, a small sum by the standards of a huge company like Ford.
Ford appears to be undergoing a somewhat less dramatic replay of General Motors Company (NYSE: GM) released in Europe. GM has made serious efforts to establish itself in Europe but has not been able to compete with existing automakers there. Eventually he sold his European brands to PSA Group (OTC: PUGOY) and withdrew from Europe after losing around $ 20 billion trying to break into the market there. While Ford hasn’t lost that much, its trajectory is similar and a parallel outcome seems likely.
What the future holds for Ford
While Ford is understandably issuing optimistic statements about its future prospects in China and Europe, neither market looks to be very promising. Sales in China continue their downward slalom, with no end in sight. Sales in Europe are decent but revenues are declining, indicating a high probability that Ford will ultimately fail to be successful in the long term in the face of competition from European automakers, as will GM.
While some might think Ford’s low stock price indicates a rebound is coming, the company has seen its stock value drop nearly 70% over the past two decades. Nothing happening in China or Europe is likely to trigger a bullish push anytime soon, and no surprises will appear in the Ford Fourth Quarter 2019 Results Report. The business may get confused or go the Studebaker path, but a sudden recovery seems unlikely. I don’t recommend buying Ford stock at this time.
This article represents the opinion of the author, who may disagree with the “official” recommendation position of a premium Motley Fool consulting service. We are heterogeneous! Challenging an investment thesis – even one of our own – helps us all to think critically about investing and make decisions that help us become smarter, happier, and richer.Source link