Stock talk for the main street investor.

Why Ford Scares Me

Ford (F) has had quite a run over the last year. The stock has risen from $2.51 to $13.90 because of the remarkable turnaround Alan Mulally has engineered. The sales organization is more efficient, cars are more stylish and the union has made concessions without going into bankruptcy like GM.

As impressive as this is I’m worried about Ford’s continued success. Last year, their first profitable year in four years, they only operated with a 2.3% net margin. As a result there is very little margin for error in their operations. Even the profit Ford had wasn’t all that surprising with 83% of profit occurring during the cash-for-clunkers quarter.

To find a year that gives indications Ford can be a $45 billion company you have to go back to 1998 when gas was about $1/gallon, Explorers were flying out of showrooms and Ford was raking in money on financing. A lot has changed since then.

I’m not calling a fall in Ford’s stock but I am pointing out the risk involved in owning Ford. All might be rosy right now but one bad accelerator could put them on an entirely different path.

Disclosure: Author has no position in Ford (F).

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