Sold Ford
April 13th, 2007 by Grant in: Investing, Stock ThoughtsI dumped my Ford shares today for a $100 loss.
Here is why:
- I’m not impressed with the direction Ford is taking with their product. It’s almost as if they’re trying too hard to create something new and different. What they really need to do is focus on quality.
- While I’m still a big fan of Alan Mulally, I have come to the realization that there is something different about his task to restructure Ford. More on that further on down the post.
- I feel that slowing capital expenditures, on both a high and low level, will really take a toll on auto makers over the next three years. We’re already starting to see companies reduce their cap ex outlay, and the everyday consumer is not far behind. Many of the luxury items (like buying a new car) are going to be deferred in favor of buying necessary items like gas and food that are already rising in cost.
It’s not that I don’t like Ford, or their prospects. However I think it’s going to take well past 2009 to put the company back in the black, as Mulally predicts.
Additionally, restructuring Ford is not entirely like restructuring Boeing Commercial. Ford is a company who sells a product to everyday Joe’s like you or I, not to leasing companies and airlines with deep pockets and less of a burden to absorb costs.
In essence, it’s easier for airline leasing companies, or airlines themselves to make a commitment to place a billion dollar order for jets than it is for me to place an order for a $25,000 car.
To look at it another way, Boeing’s customers are playing with borrowed money which is protected by huge lines of business credit. Ford’s customers are either playing with their own money, or money leveraged against something much more personal than a business (i.e. their house or their own personal credit).
So after thinking about it for a while today, I came to the realization that there are a lot more forces working against Ford than with it. On the other hand, betting on Ford (and Mulally) could make you some MadMoney if I’m wrong.
What do you think?
Agree with my decision to dump Ford? Why?
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April 13th, 2007 at 11:08 pm
We just bought a Ford Escape 2005 on March this year, I just found out that is a recall on this brand and that is a danger of fire, I was just trying to be a good American, I think that if we do not help the Auto makers of this country, who will?, if its cold the car will not moved or I can’t take the key out of the engine, I am disabled and it is hard for me, to deal with all this, can you help me. Thanks
April 14th, 2007 at 7:36 pm
I agree and think that there are better places to put your money right now. But think about it this way, Ford is trading near all time lows, and if you think the company is fundamentally due for a turn around than your reward GREATLY outweighs your risk. Assuming you’re averaged at $8 (and also assuming you didn’t bet your mortage on this one stock), why not give yourself a 20% downside risk (that would stop you out at $6.40) with a target of 2004 prices around $16, 100% return? I don’t know much about the specifics of the company or the industry, I’m just looking at it from a risk/reward scenario…..
April 15th, 2007 at 8:42 pm
Lysette, unfortunately I don’t know much about the Ford Escape, and I’m purely referring to the stock itself. I may suggest that you see the local dealership and get the recall taken care of though, as this work should be free to you, the customer.
Sorry I can’t be of more help!
Winston, I think you’re right on about the risk/reward aspect, which is why I held on to the stock for this long. That was my strategy going forward.
However, I see more downside through the next year in the auto sector than I do upside. If Mulally wants to be cash flow positive by 2009, then 2008 may be the year to buy the stock.
Now that I’ve said all that and sold all my shares, the stock will probably double…
C’est la vie.
Grant