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Ford’s Decision to Relaunch Bronco Proves Why It Deserves to Go Bankrupt

Last Updated September 23, 2020 2:03 PM
Chinmay Pandya
Last Updated September 23, 2020 2:03 PM
  • Ford unveils its off-road competitor to the Jeep Wrangler Monday, the Bronco, which makes a comeback after 24 years.
  • The company’s decision to enter a market dominated by the Jeep Wrangler for 70 years is baffling.
  • While the pandemic has already sped up Ford’s decision to insolvency, this latest decision could be the icing on the cake.

Ford Motor Company’s (NYSE:F) stock has been sliding lower over the past year, losing almost 40%. This comes even as top indexes underwent record rallies  because of Federal Reserve intervention.

The company’s downward spiral has been going on for many years–even as the broader market experienced a historic bull run with multiple record highs.

Ford Motor, Ford
Ford’s stock has vastly underperformed the S&P 500 Index during the bull market. | Chart: Yahoo Finance 

This decline has been synonymous with the long-term downtrend of the stock since former talisman Allan Mulally left in 2014.  Under current CEO Jim Hackett, Ford has gone to new lows.

The Bronco relaunch is an example  of Ford’s terrible decision-making.  Soon, the fallen-angel could go under, and poor decisions like the Bronco relaunch will be to blame.

Ford Is Reeling Under Heavy Debt, and It Is Junk-Rated

Ford is under tremendous debt–debt that has ballooned dramatically since the 1990s.

Ford Motor Company's debt
While Ford’s debt has grown, its income has been stagnant. | Source: YCharts 

Adding to Ford’s woes is the fact that its debt is now junk after its credit rating got downgraded.  After Fitch, Moody’s downgraded its rating as well. 

Interest rates on its debt have soared, making it difficult for Ford to raise more cash in the future. The junk bonds it issued to deal with COVID-19’s impact on operations  will incur interest rates of between 8.5% and 9.25%. Of course, the only buyer will be the Fed. 

Ford's form 10-Q
Ford will have a tough time getting funding in the coming days. | Source: Form 10-Q 

Ford’s first-quarter earnings weren’t impacted by the pandemic as much as the second-quarter earnings will be. Q2 results will be terrible.

Analysts are predicting a staggering 542.9% decline in Ford’s EPS in the second quarter.

Analysts predictions of biggest drops in EPS in second quarter of 2020
Ford’s Q2 expected Q2 results compared to other companies. | Source: Investors.com 

Ford Bronco Exemplifies Poor Decision-Making

Ford’s decision to relaunch the Bronco after 24 years begs the question: why would it spend all that money to enter a market that is already dominated by a rival? Why would it do so when it’s struggling to survive?

The company has already lost a staggering amount of market share in recent decades . Adding new models and spending big on product development hasn’t yielded Ford any results.

Despite all that, management gave the green light to develop the Bronco once again. A car that will compete directly with the Jeep Wrangler, which has dominated the off-road space for multiple decades. 

Jeep Wrangler sales by year
Wrangler’s steadily rising sales. | Source: Goodcarbadcar 

Ford knows what it’s like to dominate a market, thanks to the F-150’s success. It doesn’t know how to dethrone a dominating behemoth with extremely loyal followers.

Such a move is exemplary of the terrible decision-making skills of Ford’s hierarchy.

Reckless decisions like this could ultimately sink Ford. The company’s management will have nobody to blame but themselves.

Disclaimer: This article represents the author’s opinion and should not be considered investment or trading advice from CCN.com. Unless otherwise noted, the author has no position in any of the stocks mentioned.