Shares of Ford Motor (F 2.50%) surged on Wednesday, up 15.2% as of 1 p.m. EDT, after U.S. lawmakers reached tentative agreement on a $2 trillion economic-rescue package.
Here's what auto investors eyeing Ford's shares need to keep in mind right now:
- Ford, like most automakers, has ample cash to ride out an extended shutdown of its factories in North America, Europe, South Africa, and parts of Asia.
- The company's moves last week to bolster its balance sheet (drawing down its line of credit, suspending dividends) were prudent ones under the circumstances.
- Ford is continuing to fund future-product development, including work on electric vehicles and self-driving technology.
- It is keeping its new-product programs on track. Ford will have fresh products in showrooms when buyers return, just as it did after the last recession.
Perhaps most important:
- Ford's prospects over the next couple of years depend largely on how America (and to a lesser extent, Europe) recover from the pandemic.
In the near term, Ford investors can relax. Right now, it seems likely that auto factories will be shut down for at least several more weeks. Ford will lose a lot of revenue during that period, but it'll be OK.
The big question is: Will the economy recover fairly quickly after the pandemic fades, or will we find ourselves in a deep, prolonged recession? The economic-rescue package that is being finalized by Congress right now is intended in part to help make a quick recovery more likely.
If it works, that's bullish for Ford over the next couple of years. But investors should keep in mind that things (including Ford's stock price) could get worse before they get better.