It’s been over a year since Ford’s (F, Financial) former CEO Alan Mulally retired, and it seems like the Blue Oval is struggling without him. Ford’s post-recession turnaround under Mulally was nothing short of a miracle; however, the automaker has failed to execute on multiple fronts in his absence. The stock is down over 20% since the time Mulally handed over the control of the business to current CEO Mark Fields, and many factors indicate that Ford’s struggle will continue.
F-150 slipup
Ford’s F-150 has been a cash cow for the company for over three decades, and many investors were rightly skeptic when the automaker announced that the 2015 F-150 will have an aluminum-truck-bed-and-body. Investors’ fears have come true as Ford is losing market share to rivals like General Motors (GM, Financial) and Fiat Chrysler (FCAU, Financial).
It was widely believed that Ford is losing market share due to production shortcomings. Ford had to retool two of its main production plants so as to produce aluminum trucks, and this process took more time than expected. As a result, Ford’s market share shrunk throughout the first half of 2015.
On the contrary, Ford did witness record average transaction price this year. Ford’s ASP for F-150 for the month of June was $44,000, 7.27% higher than last year’s F-150 model. However, F-150 sales plunged by 8.9% y-o-y in June and I don’t think a 7.27% increase in ASP will be able to offset such a massive drop. Also, considering that Ford spent close to $850 million in retooling the plants, the ROI is terrible as of now.
While Ford bulls expect the company’s sales to skyrocket once the production capacity reaches maximum level, a new Bloomberg report suggests that Ford is offering discounts up to $10,000 on the new F-150. The report noted:
“Ford Motor Co. has begun offering discounts that can exceed $10,000 on the new aluminum-bodied F-150 pickup to reverse a sales slump while it works to build inventory on dealer lots.
The company’s website offers “up to $10,029 in total savings” on a 2015 F-150 XLT SuperCab 4X4 with the luxury chrome or sport package in some U.S. regions. That model comes with a discount of $7,050 in other areas, according to Ford.com.”
Mark LaNeve, vice president of Ford's U.S. marketing, sales and service said some incentives are being offered by individual dealers, and points out the same incentives are also often used by Ford's competitors.Ă‚
Ford had a lot riding on the new F-150 and increasing discounts is a clear indication that production isn’t the only problem. Offering heavy discounts points to the fact that the aluminum pickup isn’t selling as fast as expected due to its higher price. Hence, Ford is offering heavy discounts to win back the lost market share.
Winning back the lost market share is a big task as Ford isn’t expected to reach maximum production capacity for a few more months. Ford is not in a good shape. The stock may seem undervalued, but given the shrinking market share, I think it has more downside to offer.
China also struggling
China’s automobile market has been growing at a rapid pace over the last few years. Ford missed out on a chance to benefit from this trend, however the company decided to pump in $5 billion in China to make up for lost ground.
The strategy was working perfectly under Mulally as Ford was recording double-digit y-o-y sales increase last year. Fast-forward to 2015, Ford’s China sales increased only 0.1% in the first half of 2015 on a y-o-y basis. China was expected to be Ford’s next growth driver, however the massive slowdown in sales is another worrying sign for investors.
In addition, the recent crash in the Chinese stock market will likely hinder Ford’s future growth in the region. China’s stock market lost over $3.25 trillion, meaning many consumers who lost money in the crash will cancel their car purchases in the coming weeks. Ford’s outlook in China also looks dim right now, and this is another worrying sign for investors.
Conclusion
While it will be unfair to pin all the blame on Ford CEO Mark Fields, the company is definitely missing Alan Mulally. The Blue Oval is struggling in two of its most important markets, and there’s no sign of a reversal of this trend. The company’s massive F-150 gamble seems to have backfired as it is losing market share to peers. Ford’s stock may look attractive under $15, but in my opinion, it has not bottomed. So, I think investors should stay on the sideline and wait for a better entry point.
