After huge industry sales figures in 2016 and 2017, most of those who follow the auto industry have anticipated that vehicle sales would start to fall back from cyclical highs this year and for the foreseeable future. That's potentially bad news for Ford Motor (NYSE:F) and Fiat Chrysler Automobiles (NYSE:FCAU), as both members of the Big Three automakers have had to deal with challenges that have pressured their stock prices.

Shares are now so cheap, that for many investors, automaker stocks look like unprecedented bargains. But others who've seen these cycles play out before note that declines in future earnings can make current valuations extremely misleading. With tariff issues also affecting the companies' manufacturing, those who are interested in Ford and Fiat Chrysler want to know whether one has a marked advantage over the other. Below, you'll see how the two compare, using some common metrics that can help you decide which is the better buy.

Two Ford F-150 trucks at a quarry with an award logo at upper left.

Image source: Ford.

Valuation and stock performance

Ford Motor and Fiat Chrysler have seen their shares go in opposite directions over the past year. Fiat Chrysler is up about 20% since August 2017, but Ford has seen its share price drop 8%. Over the past three months, both companies have seen double-digit percentage declines that reflect some of the difficulties that the entire industry has had lately.

As a result, most earnings-based valuation measures look extremely attractive for both companies. Fiat Chrysler's trailing earnings multiple of just 6.8 is one of the lowest in the market, but it's more expensive than Ford's 5.9 trailing multiple. When you incorporate future earnings projections into the mix, though, the two stocks switch places. Fiat's forward earnings multiple is just 4.5, compared to 7.2 for Ford. Earnings outlooks can be wrong, but there's enough of a difference to give Fiat Chrysler the valuation nod over Ford.

Dividends

However, if you're an income investor looking for dividends, there's really only one choice between these two automakers. Fiat Chrysler doesn't pay a dividend, while Ford's current dividend yield is extremely impressive at more than 6%. For Fiat, other priorities for cash have led to its strategic decision to hold off on dividends, most notably paying down the extensive amount of debt it has accumulated. Especially as interest rates rise, eliminating debt as quickly as possible will be of paramount importance in order to avoid big boosts in total interest expense.

Yet even though Ford might seem like a clear pick on the dividend front, many investors have worried that a payout cut could be coming. Between slowing Chinese sales and continued weakness elsewhere, Ford's cash flow has dwindled, making it tougher to sustain dividend payments at current levels. Most shareholders believe that the company will cut dividends only as a last resort, but if downtrends turn out to be more severe than in past cycles, the pressure could prove difficult for Ford to endure. For now, Ford is the only reasonable choice for those needing income, but dividend investors will have to keep their eyes on fundamentals to ensure that the automaker can keep making those payouts.

Growth and potential risk

Both Ford and Fiat Chrysler are in the uncomfortable position of having to find avenues for long-term growth even as short-term headwinds have the potential to hurt their immediate results. Ford's most recent earnings report showed a more than 40% drop in profit from year-ago figures, with the amount of weakness across its global operations coming as a bit of a shock to those following the stock. In the Asia-Pacific region, Ford lost almost $400 million, as a greater than 30% drop in sales in China made income from its Chinese joint ventures essentially disappear. More surprising was Ford's downtick in Europe, where a greater than 3% rise in revenue wasn't enough to avoid a pre-tax loss for the segment. Yet what's troubling some Ford investors most is the fact that CEO Jim Hackett still hasn't come out with very many details about what he envisions as a massive restructuring plan that could easily involve costs exceeding $10 billion. Until those plans are clearer, shareholders will have to be nervous about exactly which strategic initiatives Ford intends to pursue.

Fiat Chrysler is also going through a transition, with new CEO Mike Manley taking the reins following an unexpected health crisis for former chief executive Sergio Marchionne that led to his death in July. Fundamentally, Fiat has suffered similar financial challenges as Ford, with profit sinking 35% from year-earlier levels. Fiat Chrysler's top-line figures have held up reasonably well, with a 4% rise in revenue coming from a 6% jump in unit shipment volume. China was the key culprit for Fiat as well, offsetting better performance in its Western Hemisphere operations. It was noteworthy that Fiat succeeded in generating more liquidity than its outstanding automotive debt, but huge challenges for the luxury Maserati make were part of what led the automaker to cut guidance for 2018. Going forward, Manley will have to work hard to match Marchionne's prowess in leading Fiat Chrysler forward.

Picking an auto stock

Fiat Chrysler appears to be a better buy than Ford right now, largely because its strategic vision is clearer and its lower valuation based on future earnings expectations gives investors more of a margin of safety. Ford has plenty of potential, but it needs to tell investors exactly how it plans to regain its lost momentum before they will be convinced that it can recover fully -- especially if the cyclical decline in auto sales starts to pick up speed.

Dan Caplinger owns shares of Ford. The Motley Fool recommends Ford. The Motley Fool has a disclosure policy.