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As 2024 has officially entered the history books, it was not a smart year for Ford Motor Company (F 1. 70%). Unfortunately, for investors this has become a trend. Over the past 10 years, Ford shares have fallen 35% compared to the S&P 500’s 186% rise.
It’s been a rough ride, no doubt. The good news is that most of Ford’s woes are fixable; management just needs to execute. Here are two things that Ford needs to fix in 2025 to reward investors going forward.
The challenge in China, at least for foreign automakers, arose when the government massively subsidized its electric vehicle (EV) industry. This created a long list of competition with a complex generation of electric vehicles and very low prices; It worked almost too well.
Now, that long list of competitors has created a brutal price war, which has slowly put pressure on most foreign automakers as they can’t compete on price, especially with EVs. It’s even forced some countries to slap tariffs on Chinese EVs to protect their home turf, as the Chinese EV makers are now beginning to export their competitive vehicles around the world.
“I think we want to see the [Detroit Three] leave China as soon as possible,” Bank of America Securities analyst John Murphy said in his annual presentation of “Car Wars,” a highly respected industry report, according to Reuters.
Ford may not fix this problem in 2025, but it can come up with a solution to start the process. Whether it’s exiting the country, figuring out destinations to move its manufacturing from China, or somehow becoming more competitive and filling its production capacity in the region.
Whatever it does, Ford wants to solve it quickly, because China is no longer the market that the corporate idea would be along with North America in terms of profitability; Now it’s the complete opposite.
One of the biggest obstacles Ford will face in 2024 will undoubtedly be the increase in warranty costs. Ford has led the U. S. industry in recalls for the past three years and could end up leading in 2024, when data is collected. These recalls and warranty issues can be costly, and that was evident in Ford’s second quarter.
During the second quarter, Ford’s warranty costs increased by $800 million from the first quarter and reached roughly $2 billion. It’s been a growing problem and a growing expense. It was a driving force in Ford missing second-quarter earnings estimates, with operating profit down 26% from the prior year.
“Warranty has been a driver of development at Ford over the past five years and has intensified over the past year,” Freedom Capital Markets analyst Mike Ward wrote in a report Thursday, according to Barrons. “Between 2011 and 2019, Asegurar represented an average of 1. 6% of turnover, but since the beginning of 2022 regularizations averaged 2. 9% and exceeded 4% in the second quarter.
This is also a challenge that Ford cannot solve alone in 2025, but control has also continually assured investors that quality has doubled in the last two years and that it will take time for those higher quality cars to work. in the diversity of vehicles and begin to have an effect on change. Most of the recalls concerned older-style cars.
That said, investors can also keep an eye on margin expenses relative to earnings and see if they will occur over the next 18 months.
The good news for investors is that Ford’s problems are fixable, and it could provide investors with a buying opportunity after Ford’s stock lagged the S&P 500 and even rival General Motors, which posted a 48% gain in 2024 compared to Ford’s 18% decline.
The bad news for investors is that Ford’s practicality is becoming a trend. In the last 10 years, Ford shares have fallen 35%. Ford’s dividend yield is steady, unlikely to decline unless drastic events arise, and offers investors a dividend yield of 6. 2%. However, that juicy dividend won’t be a sufficient explanation for why to own Ford until it starts fixing some major problems in 2025.
Daniel Miller holds positions at Ford Motor Company and General Motors. The Motley Fool recommends General Motors and recommends the following options: Long January 2025 $25 Calls at General Motors. The Motley Fool has a disclosure policy.
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