Anybody else get in on Ford today? I got in this morning at $14.36 (about 20% off the 52-week high). Fundamentals showed it to be trading at a pretty steep discount to its peers. I think the 2015 F-150 will be a hit. They’ve invested a bunch into their production facilities, both domestic and china, and depressed oil prices will benefit their entire truck & suv sales…
Thoughts?
I’d short it. I’ve explained elsewhere that I think the American auto consumer is way over extended on term and negative equity and I think we will start seeing folks keep their cars for longer. They have to. The middle class simply won’t be able to roll 30% negative equity into a 8 year loan every 3 years indefinitely. Ford has limited exposure to growth markets (China) so I’d say its likely going to be one of the worst of the bunch. VW sells 4x the number of cars in China, followed by Toyota and GM. There is a growth market. The US market is not a growth story as far as I’m concerned. I understand that Ford is building its China business, but if I wanted to buy an automaker I’d prefer one that’s already an established market leader with a huge first mover advantage.
If you believe the studies of the average age of cars on the road in the U.S. to be true, that stands at 11.4 years, the highest its ever been… in other words, Americans haven’t bought themselves a new car, on average, in quite some time. If anything, I think that would provide room for Americans to go on a car buying spree. With the explorer and expedition getting model year makeovers coinciding with an SUV/Crossover trend in the U.S., I think I’m going to wait it out while oil prices are depressed below $100. Also, the F-150 makes up like 90% of their profit, reportedly.
I agree on your china assertion, however.
This isn’t meant to be a long-term play… rather 9 to 18 months.
Average autoloan terms are longer than ever: http://www.usatoday.com/story/money/cars/2014/09/07/car-loans-long-term/15237795/ Which means more negative equity and less flexibility to purchase new cars.
Meh… we appear to have conflicting data, data that fits each of our narratives… I still believe Ford to be undervalued and have already bought in. Time will tell. In the meantime, I’ll collect the 4% yield and watch where it goes.
Got to keep your samples straight. Are those longer auto terms people buying new cars or customers buying used cars? What type of cars? I bet it isn’t just a universal lengthening
^ Generally longer terms are only available on new purchases. Five years is max for used in conventional lending I believe.
It really depends. I don’t know industry averages, but I do see some people in my area that do that type of lending. And even subprime loans on used cars seem to be going long. But I really do suspect some higher priced autos may suffer from this more than others, but not sure there is public data available to that level
Did you guys ever think that maybe cars are older and terms are longer because modern cars are better made? Also, the level of amenities in a new car is not as compelling as it used to be. Used to be you buy a new car because you want AC and a CD player. Ok, pretty compelling since it sucks to not have AC or be able to listen to the music you want. Now, you get a back up camera. Whoopdy freekin’ do.
I just bought a used car and was offered the same rate for 3-7 years, a ridiculously low 2.2%%. Car was a 2011, so maybe the age of the car has an impact.
I think that also challenges your assertion about negative equity. You’d be surprised how easy it is to roll negative equity into a new loan on a new vehicle. People who exit leases early do this all the time.
^I think this.
^ If that’s the case, its bearish for the industry. Less turnover is bad. I agree with those points as well though.
Whatever that opposite of rosed colored glasses is, that’s what you’re wearing.
Yeah, but Ford gets some of it back through service protection plans and high end dealer services due to the increased complexity of the vehicles. Additionally, the same factors slowing US growth may incenetivise emerging market purchasers still catching up. I wouldn’t hold Ford’s lower market penetration overseas against them as they have a superior consumer product portfolio and in the end I always bet on the product. That being said, GM’s commercial vehicle portfolio is formidable and often forgotten about in conversation. But for a long term buy, F would be high on my list.
Well if cars last longer and have no interesting new features, you’re going to sell fewer of them.
I just think it is more nuanced than that. It is not as simple as saying cars last longer, F is selling fewer cars, so short F. With more reliable cars automakers deliver more value to the customer, and likely command a higher price. F has excellent margins on the F150, which is dominant in the category n the U.S. and bodes well with low gas. If housing picks up that is gong to bode well for F150 sales, so that is something to consider.
Car reliability means you need to reassess how you look at the sales cycle and analyze future demand, not that you short all automakers.