Ford Motor Company (F 0.36%) is one of the most recognizable brands in America. Every day you see the famous blue sign in your driveway or on the roads. The company’s history and fame make it an almost constant hot topic in the investment community.
The stock is down 32% in 2022, so you might be wondering if there’s more pain ahead in 2023, or if this is an opportunity to enter the new year. I looked at the data to find the answer and a very clear message is being sent. Here’s what you need to know.
The economic storm is gathering
Several factors could work against Ford in 2023. Vehicles are an expensive commodity for consumers and the businesses that buy them, with the average transaction price of a new vehicle as of June 2022 being $45,844. That’s a big pill to swallow considering the median household income in the US is just over $70,000 a year.
Rising interest rates make vehicles even more expensive; The average new vehicle loan is now between 5% and 6%, adding to the monthly payment that consumers must pay.
These are cracks in the ice for consumers struggling with year-round inflation. Below you can see how the personal savings rate has been falling steadily and consumer sentiment has fallen.
All in all, vehicles are more expensive than ever and consumers don’t feel good about spending their money. This could mean lower sales volumes, which could reduce Ford’s profits as its factories do their best to produce as many units as possible.
Sales are falling and may continue to do so
Unit sales have already started to decline. October unit sales in the United States were down 10% year-over-year, which could spell trouble because it’s Ford’s golden goose. Ford measures its profit as EBIT (earnings before interest and taxes), which was $1.8 billion in the third quarter. However, the North American market accounted for the largest part of it, i.e. 1.3 billion dollars.
Given the weak economic consumer data, it’s hard to see vehicle buyers stepping up anytime soon. A recession is widely expected by 2023, and after that, consumers will take time to recover. Given the potential role of the COVID-19 stimulus in fueling inflation, I wouldn’t expect another injection of money into consumers’ pockets – sentiment and savings rates may take time to recover.
A slowdown in growth can be expected ahead
Analysts have certainly scaled back their expectations for Ford. I wrote about Ford last year around this time; Analysts were optimistic then, calling for earnings per share (EPS) growth to average 25% over the next three to five years.
But since then, the picture has changed. Today, analysts are calling for EPS growth averaging just 3% per year over the next three to five years. That’s a dramatic difference. Of course, the picture could change again in the future, but the potential for an economic downturn and weak consumer spending could depress Ford’s performance a bit.
Investors can view the stock as a potential long-term investment by slowly purchasing shares over time. However, it looks like the stock may be winding down for a while, and I probably wouldn’t rush to buy the stock until there is an uptrend in consumer sentiment and signs that Americans are back on solid financial footing.
Justin Pope has no position in any of these stocks. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.