Ford Wrecked by Recession Fear

Ford Motor Co. (NYSE: F) shares nosedived toward a 52-week low and a 50% sell-off this year. UBS downgraded Ford stock from Neutral to a rare Sell rating due to concern the company could face a loss during a recession. UBS also dropped its price target to $10, below the 52-week low.

Ford investors should have seen the problem coming. The manufacturer has bungled several initiatives and now faces a period when new car prices are high, car loan rates have soared and inflation has eaten into discretionary spending. These circumstances are coupled with data that shows Americans keep cars for over 12 years, on average. Car owners have learned to be patient.

Ford has hurt its ability to sell some extremely popular vehicles. It has raised the price of its Mustang Mach-E and Ford F-150 Lightning by thousands of dollars. This will make price-conscious consumers wary. It also demonstrates that Ford’s management cannot handle supply chain forecasts. Ford should have foreseen the surge in the cost of some vehicle parts.

Ford also missed its estimated company expenses by $1 billion for the third quarter. Once again, management appears to be clueless about how to make forecasts, even for very recent periods.

Ford has pressed corporate expenses down, most recently through layoffs. A recession may accelerate that process, at least if Ford wants to stay in the black.

The list of things Ford should have controlled can be followed by those it cannot. The Federal Reserve has raised rates. Car loan rates have increased with that. The monthly cost of owning a new car has been driven out of the reach of some Americans.

A recession is nearly inevitable, if one has not begun already. Unemployment will rise. Larry Summers, the former Treasury secretary, said unemployment might need to reach 7.5% to knock out inflation. For Americans who will keep their jobs, inflation at over 8%, according to the consumer price index, will undermine consumer purchasing power. Ford will not be alone in combating the consequences of the drop in employment and the rising cost of living.

However, Ford did not control many factors it might have to improve its financial health. That is one reason for the risk of financial losses and why the stock has been so severely hammered.

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