Ford’s Struggle to Regain Its Footing: A Decade of Decline
The automotive giant Ford Motor Company has been struggling to find its way since the departure of its former CEO Alan Mulally. Despite his remarkable leadership during the financial crisis, Ford’s stock has been stuck in neutral, shedding roughly 36% of its value over the past decade.
A Dividend-Fueled Illusion?
Investors often point to Ford’s robust dividend yield of 5.7% as a reason to hold onto the stock. While it’s true that the dividend has contributed significantly to the company’s overall returns, it’s essential to consider the opportunity cost. When compared to the S&P 500’s performance over the same period, even Ford’s impressive dividend can’t keep pace.
The Weight of Operational Inefficiencies
Costs continue to plague Ford’s profits, with the company lagging behind its competitors in terms of operational efficiency. The automaker’s struggles with recalls have resulted in substantial financial burdens, with warranty and recall costs reaching $2.3 billion in the second quarter alone. Furthermore, its electric vehicle division, Model-e, has lost nearly $3.7 billion in EBIT during the first nine months of 2024.
The Electric Vehicle Conundrum
Ford’s traditional profit drivers – full-size trucks and SUVs – are becoming less lucrative as the world transitions to electric vehicles. These larger vehicles require more expensive batteries, eroding their profit margins. Meanwhile, the Chinese market, once touted as a potential goldmine for Ford, has failed to materialize, with domestic brands surging ahead in EV technology and pricing.
A Messy Dealer Inventory and Uncertain Future
Ford’s dealer inventories are in disarray, with 112 days’ worth of supply on lots, far exceeding the industry average. This surplus puts pressure on pricing and production rates. As the automotive landscape shifts towards electric and autonomous vehicles, Ford’s lack of progress in these areas raises concerns about its ability to adapt and thrive.
A Longtime Investor’s Lament
As a longtime Ford investor, it’s become clear that the company’s struggles are deeply ingrained. Without significant improvements in cost management, recall expenses, and EV losses, it may be time to reevaluate the investment and seek out opportunities with more upside and less uncertainty. The reality is that Alan Mulally’s leadership was a unique factor in Ford’s success, and his absence has left a void that the company has yet to fill.
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