President Trump's recent rollout of tariffs has caused chaos in the stock market and plenty of uncertainty among business leaders who are trying to map out the long-term strategy for their companies.
Some investors are looking for any signs that the Trump administration may take a softer approach to the industry. That's why it wasn't surprising to see investors jump on Trump's comments recently when he said he wants to "help some of the car companies" amid his 25% auto tariffs.
Both Ford's (F +3.99%) and General Motors' stocks popped on that comment, with Ford's share price rising about 4% the same day Trump made his comments. However, buying Ford stock based on the shifting sentiment from the president is a terrible strategy. Here's why.
Image source: Ford.
Trump could change his mind
One reason why it's not a good idea to buy Ford or other auto stocks based on one comment is that President Trump could simply change his mind.
Earlier this month, the Trump administration announced, and then subsequently walked back, some of the harshest tariffs on most countries in only about 24 hours. Imports from China, however, are still at a staggering 145%.
If you're banking on the administration giving Ford (or other domestic automakers) a permanent reprieve on tariffs, you're essentially gambling with your money. President Trump could just as easily renege on his comments to help the automakers as quickly as he slapped steep tariffs on auto imports.
Even if the administration puts a permanent pause on some tariffs, there's no certainty they'll remain in place or for how long. It has become increasingly difficult to know which direction the administration is going on tariffs, and the constant shift means that buying stocks based on one comment is likely a terrible idea.
Even if auto tariffs temporarily go away, economic damage could already be done
President Trump's auto tariff goals seem to be focused on bringing automotive manufacturing back to the U.S., but the costs of doing so for Ford and other domestic automakers are tremendously high.
About 17% of Ford's North American production occurs in Mexico and Canada. If auto tariffs stay in place, the cost of new and used vehicles could increase by an average of 13.5%. But even if automotive tariffs disappear tomorrow, other substantial tariffs are in place, including 10% for most countries and 145% for China. While some new trade deals will be made, many economists and CEOs believe there will be substantial economic pain ahead.
A recent Wall Street Journal survey of economists put the risk of a recession at 45% over the next year. And more than half of CEOs in a separate survey think one is coming in the next six months.
NYSE: F
Key Data Points
History shows that Americans do not open their wallets for car purchases when the economy is doing poorly. During the Great Recession, new vehicle sales fell by 40% in just 12 months -- equal to $107 billion in sales declines. That doesn't mean they'll fall by that much again if a slowdown occurs, but it does show that when Americans are worried about their finances, they don't go out and buy new cars.
And Americans are worried about their finances. A recent CNBC survey found that 70% of Americans are stressed about personal finances, with the top-cited reasons being inflation, interest rates, and tariffs.
All of this adds up to a bad time to buy Ford
There is significant uncertainty among Ford, automakers, and the economy in general. There's no guarantee a recession is around the corner, but if a slowdown occurs because of tariffs, it could put a significant strain on Ford. The company's CEO, Jim Farley, said earlier this year:
"Let's be real honest: Long term, a 25% tariff across the Mexico and Canada borders would blow a hole in the U.S. industry that we've never seen."
There's also no guarantee that "help" from the Trump administration will fix Ford's predicament. Even if auto tariffs go away, the U.S. will be engaged in a trade war with China and still have significant tariffs against other trade partners that could slow the economy.
Instead of buying Ford or other stocks based on the hope that the company will eventually be immunized from the tariffs, it's probably best to sit this stock out until the dust settles and more concrete information is in place to make a wise decision.
