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Archive for September 17th, 2016

1908_ford_model_t_runabout

Ford announced Wednesday that it will move its entire small car operation from America to Mexico.

“Over the next two to three years, we will have migrated all of our small car production to Mexico and out of the United States,” said Ford CEO Mark Fields, during an investor conference it was hosting in Detroit, Michigan. Notice he told investors what they should expect.

Ford’s share price continued its slow decline anyway. The share price peaked back in 1999 at $37.14. It’s been up and down since then, but never back up to the peak. The share price plummeted to a $1.43 in 2009, reached $18.65 in 2011, hit another peak in 2014 at $17.72 and has been going down ever since. The shares traded at $12.11 on September 16, two days after Fields made his foolish announcement to investors.

Ford management has exported over half of its US jobs to Mexico since NAFTA. Thank you Bill and Hillary Clinton. This has been done to reduce its labor costs and increase its profits, share price and dividends. Ford’s decision will also increase income inequality and reduce its long-term per capita sales.

So what happens when virtually all of Ford’s jobs are overseas? What happens when the next recession hits sometime within the next twelve months, most likely by or before June 2017?

Ford management can’t export many more jobs to Mexico, so that avenue to increase earnings and share prices will soon close down. The next recession will be worse than the last one, which I will explain why in a day or so. Ford’s retained earnings peaked at $27.5 billion a year ago. That’s dropped by $11 billion in a year. In other words, Ford is running out of financial room to maneuver, especially during this coming economic downturn.

The company still gives a nice dividend of nearly 5 percent. But all that means is that Ford will run out of money sooner than later during the downturn.

Expect its share price to drop back down to a dollar something, or less. The company likely will be facing a financial crisis and possible insolvency within the next five years.

Ford is an unwise investment, even for billionaires and hedge funds. Even if the company doesn’t face insolvency over the next five years, its share price is going to continue to tank in the long-run, but CEO Fields hasn’t figured that out. He should be investing in US production rather than investors, and to hell with the share price.

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