Market Mad House

In individuals, insanity is rare; but in groups, parties, nations and epochs, it is the rule. Friedrich Nietzsche


Ford Kills Sedans, Who wins Toyota or Tesla?

American cars are officially dead, The Ford Motor Company (NYSE: F) decided to stop building sedans in North America and almost nobody seems to have noticed.

Ford announced that will systematically end its Fiesta and Taurus models in North America in April. That announcement produced a big yawn from the media, and only generated a little controversy. American Conservative writer Telly Davidson called the Ford decision “a bombshell” but he is wrong.

Sedans are so unpopular in America that nobody beyond a few gearheads and xenophobes cared that Ford is dropping them. American drivers simply do not want sedans anymore. Honda Motors (NYSE: HMC) is having so much trouble selling Accords that it decided to shut down production of that sedan for two weeks, Jalopink reported. Honda took that action because it cannot move sedans through its dealerships.

Ford is Smart to Get out of the Car Business

The numbers tell us why Ford killed sedans, it only sold 16,103 Fusions a month in 2017, Jalopink reported. As recently as 2014, Ford sold 30,000 of that model each month. Sales of the Taurus were even worse, Ford less than 4,000 of those vehicles a month in 2017.

Ending sedan production is a very smart move for Ford because only two of the 10 bestselling vehicles in America are sedans. Ford’s revenues will not be affected because the company manufactures America’s best-selling vehicle; the F-Series pickup truck. Ford sold 896,764 F-Series in 2017 up 9.3% from 2016, Business Insider reported. Pulling the plug on Taurus and Fusion frees up money and resources that can be used to increase pickup truck production.

America’s three bestselling vehicles are pickup trucks. They are the Ford F Series, Chevrolet Silverado from General Motors (NYSE: GM) and Ram from Fiat Chrysler (NYSE: FCAU). Each one of those pickups outsold every sedan manufactured in the United States. The numbers indicate there is no market for American made Sedans, the four best-selling sedans in the US were built by Toyota and Honda.

A smart move for Ford would be to start manufacturing an electric-powered F-Series and electric-powered versions of its Transit and Transit Connect vans. That way Ford can head off Tesla Motors’ (NASDAQ: TSLA) electric pickup plans. Another shrewd step for Ford will be to manufacture a self-driving F-series.

Concentrating on pickups is a great idea because they are outselling SUVs,, the Toyota (NYSE: TMC) Rav 4 and Nissan Rogue. It looks as if the popularity of SUVs is greatly exaggerated.

Surrendering the sedan market to Toyota and Honda is the logical move for Ford and Fiat Chrysler; which as stopped making its Dodge Dart and Chrysler 200 marquees. It will allow those companies to throw all their resources at the truck and van markets which appear to be the future of the American auto industry.

Elon Musk is stupid to manufacture a Tesla Sedan

The numbers indicate that Elon Musk made a terrible miscalculation by betting the company on the Tesla Model 3. The Model 3 is a mid-sized and mid-priced sedan a kind of vehicle that American drivers no longer want.

Like Honda, Musk might find himself with lots full of small sedans that nobody wants. Elon would be well advised to end Model 3 production and redirect Tesla resources to the semi, the Model S, the Model X, the Roadster and his plans for a pickup truck and a large SUV.

Building a Tesla van or minivan would have been a far smarter move than the Model 3. There would be a huge market for a Tesla van, particularly in fleet sales and possibly a market for Tesla pickups. My guess is that there is little or no market for the Model 3. Most people that want a Tesla sedan will spring for the S.

Don’t be at all surprised if Musk ends Model 3 production at some point this year, and begins making something else. A massive marketing push for the Model S and Model X, proven models in categories for which is there is a lot of demand; luxury sedans and crossovers, would be a better use of Tesla resource’s and Elon’s star power.

Is Ford Making Money?

Despite the death of sedans, Ford is still a very healthy company that is making a lot of money.

The Ford Motor Company reported an annual gross profit of $25.444 billion in December 2017, Morningstar reported. Ford reported a net income of $7.628 billion and an operating income of $7.248 billion on the same day.

Ford’s revenues grew to $156.776 billion from $151.8 billion during 2017, Morningstar data indicates. For all its problems with sedans, Ford is still a growing company that makes a lot of money. Ford’s revenues grew to $159.59 billion on March 31, 2018, ycharts data indicates.

Ford had $40.07 billion in the bank in the form of cash and short-term investments on 31 March 2018, ycharts estimated. Ford reported making $4.688 billion in cash from financing and $17.27 billion in cash from operations on March 31, 2018. That gave Ford a free cash flow of $1.735 billion on the same day.

All this makes Ford a very cash-rich company; that is a great value investment because of the $11.47 share price reported on 24 May 2018. Ford is also a decent dividend stock, it paid out 15¢ a share on 19 April 2018. That was down from 28¢ a share in January.

Ford is Well Positioned for the future

More importantly, Ford is well positioned for the auto industry’s future because of all that cash. It invested $1 billion in Argo AI, a company that is trying to develop artificial intelligence (AI) for vehicles last year, The Verge reported. Ford hopes Argo can help it build a fully-autonomous vehicle by 2022.

Ford also has plans to kill Tesla by investing $11 billion to develop 40 electric vehicles by 2022, Reuters reported. Those vehicles include a hybrid version of the F-150 due out in 2020.

The death of sedans makes Ford one of the best value investments in the auto sector. The company that put Americans behind the wheel is still a great value investment for the 21st Century.