Ford Motor Company (F +3.54%) is one of the most recognizable brands in America. Every day you see the famous blue badge in your driveway or on the roads. The company's history and fame make it a nearly constant hot topic in the investing community.
The stock is down 32% in 2022, so you might wonder whether there's more pain ahead in 2023, or if this is a buy-the-dip opportunity entering the new year. I've looked at the data to find the answer, and a very clear message is being sent. Here is what you need to know.
NYSE: F
Key Data Points
An economic storm is brewing
There's a culmination of factors that could work against Ford in 2023. Vehicles are big-ticket items for consumers and businesses that purchase them -- the average transaction price for a new vehicle was $45,844 as of June 2022. That's a big pill to swallow, considering the average household income in the United States is just over $70K per year.
Rising interest rates are making vehicles even more expensive; the average new vehicle loan now carries a rate between 5% and 6%, adding to the monthly payment consumers must shoulder.
These are cracks in the ice for consumers struggling with the inflation they've faced throughout the year. You can see below how the personal savings rate has steadily plummeted, and consumer sentiment has fallen.
U.S. Personal Savings Rate data by YCharts
In summary, vehicles are more expensive than ever, and consumers aren't feeling good about spending their money. That could mean declining sales volumes, which could squeeze Ford's profits because its factories do their best when producing as many units as possible.
Sales are slipping, and that could continue
Unit sales have already begun slipping. October unit sales were down 10% year over year in the United States, which could spell trouble because it's Ford's golden goose. Ford measures its profit as EBIT (earnings before interest and taxes), which came in at $1.8 billion in the third quarter. However, the North American market contributed most of that, or $1.3 billion.
Given the weak economic consumer data, it's hard to see vehicle buyers stepping up to the plate anytime soon. A recession has become widely expected in 2023, and it will take time for consumers to get back on their feet once that passes. Given the potential role that the COVID-19 stimulus had in stoking inflation, I wouldn't expect another injection of money into consumer pockets -- rebuilding sentiment and savings rates could take some time.
Slowing growth could be ahead
Analysts have certainly walked back their expectations for Ford moving forward. I wrote about Ford around this time last year; analysts were optimistic then, calling for earnings-per-share (EPS) growth to average 25% over the next three to five years.
But the picture has changed since then. Today, analysts are calling for EPS growth averaging just 3% annually over the next three to five years. That's a dramatic difference. Of course, the picture could change again in the future, but the potential of a recession and weak consumer spending could weigh Ford's performance down for a bit.
Investors can consider the stock a potential long-term investment, buying shares slowly over time. However, it looks like the stock could languish for a while, and I probably wouldn't hurry to buy shares until there's an uptrend in consumer sentiment and signs that Americans are on firm financial footing once again.
