What happened
Shares of Ford Motor Company (F 0.75%) were trading lower at midday on Monday, amid a broad-based sell-off driven by investor concerns about the deeply indebted Chinese property developer China Evergrande Group (EGRN.F -43.68%).
As of noon EDT, Ford's share price was down about 5.6% from Friday's close.
So what
Investors are concerned about Evergrande: The giant property developer has huge debt that it probably can't service, bankruptcy appears likely, and the Chinese government has hinted that no bailout will be forthcoming. That's not good for holders of Evergrande's stock or bonds, of course -- but the real concern is that its failure could have systemic effects.
For starters, Evergrande isn't the only big Chinese developer in crisis, and it's thought that its collapse could push others into bankruptcy as well. That means lots of investors -- and lots of contractors and suppliers that depend on these developers -- could lose a lot of money, perhaps enough to push China's economy into recession.
If that happens, the effects could well be felt around the world.
Ford went through a rough patch in China, but it has been rebounding on the strength of new products like the Escape (shown here in its China-market version). A recession could set back those efforts. Image source: Ford Motor Company.
Now what
But what about Ford? While it has a significant presence in China, the region accounted for just 2.5% of its automotive revenue in the second quarter. A slowdown in sales in China wouldn't be ideal for the Blue Oval, but it wouldn't be a big problem -- unless the economic effects spread to Europe and (especially) North America.
Ford has a very strong balance sheet and wouldn't face existential risk in a U.S. recession, but its share price would almost certainly take a deep dive as auto sales fell. That said, auto investors should keep in mind that even if the U.S. does avoid an economic setback, Ford's manufacturing output -- already crimped by a global shortage of semiconductors -- could be hurt further if China woes lead to problems at Ford's Asian suppliers.
I own Ford stock, I think the company is headed in a great direction, and I have no plans to sell. But if an Evergrande failure has broader effects, we might -- might -- be in for a rough ride over the next few quarters. Buckle up.
