Robinhood Traders Betting Big on Ford Motor Will Get Obliterated

Ford Motor Company has pushed back bankruptcy by piling on high-interest junk-rated debt. Robinhood traders buying the stock will suffer.
Jim Hackett, Ford
Ford Motor Company has been in shambles under the guidance of CEO Jim Hackett. Retail traders betting on the struggling automaker will get wrecked. | Image: Bill Pugliano/Getty Images/AFP
  • Ford stock has dipped despite reporting an improved cash position and narrower losses in Q2 2020.
  • Robinhood traders are loading up on the Ford stock.
  • The truth is, Ford Motor Company is on borrowed time and will go bankrupt anyway.

Despite reporting better than expected earnings last week, Ford Motor Company (NYSE:F) has continued its long-term downtrend.

Ford Motor Company stock price
Ford Motor Company is in a long-term downtrend. | Source: Yahoo! Finance

Ford reported an adjusted operating loss of $1.9 billion in the second quarter, much better than the $5 billion loss expected.

The stock’s short-lived rally before the results got sold after earnings came out.

Meanwhile, keen buying interest from Robinhood traders has propelled Ford to the top of the highest traded stocks on the platform.

Robinhood traders show keen interest in Ford.
Robinhood traders rush to buy the dip on Ford Motor Company’s stock. | Source: Robintrack.net

Ford has reported a war chest of cash and marketable securities at $39.3 billion, which might seem pretty decent, but there is a lot more to it than meets the eye.

There is a real possibility that Robinhood traders might be left holding the bag when Ford goes under, and here’s why.

Ford’s Debt Continues to Grow and Get More Expensive

Ford Motor Company’s newly acquired cash hoard is twice its minimum cash balance target of $20 billion. However, most of it is a high-interest debt that Ford secured to survive the pandemic.

Back in 2006, then-CEO Alan Mullaly managed to secure $23.6 billion in debt, which helped the company escape bankruptcy. Eventually, Ford escaped by the skin of its teeth by borrowing another $5.9 billion in 2009. The massive obligation still haunts the company to this day.

Ford has sought permission to defer payments of the 2009 loans. It was supposed to pay $591 million in 2020, $591 million in 2021, and $289 million in 2022.

As Charles Elson, director of the Weinberg Center for Corporate Governance at the University of Delaware, rightly points out,

The fact that Ford Motor Company, a multibillion-dollar company, finds it necessary to defer loan payments of that size is concerning.

Indeed, those are small payments compared to the colossal amounts Ford has racked up so far this year.

Ford's 2020 debt levels have soared.
This year alone, Ford has added $21 billion in debt. | Source: Detroit Free Press

This debt will get more expensive, and raising more money will prove difficult as Ford’s credit rating continues to sink.

The enormous junk-rated debt is a ticking time bomb.

The Blue Oval Is Bleeding Cash Amid Depressed Sales

Ford has a negative cash flow of $5.9 billion, and its reported sales have dropped significantly because of the coronavirus-induced shutdown.

Ford's Q2 2020 sales numbers
Ford reported depressed sales numbers in Q2 2020. | Source: Ford

After shutting down entirely in March, Ford had just got back to pre-COVID-19 production levels. Now, it looks like another shutdown could be right around the corner.

Robinhood traders who are loading up on the stock might believe Ford will muster a miraculous turnaround. But if Ford keeps making terrible decisions like the Bronco relaunch, it might never materialize.

The question remains: Will Ford be able to raise enough junk-rated high-interest debt until then?

Watch: Is Ford Going Bankrupt?

Ford expects big things from the Mustang Mach-E, new F-150, and the new Bronco, but the ongoing recession will weigh on sales, and lockdown 2.0 will take a toll on production capacity.

The debt bomb is ticking for Ford. When it goes off, it will take down new investors who have faith in the company.

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.

Sam Bourgi edited this article for CCN.com. If you see a breach of our Code of Ethics or find a factual, spelling, or grammar error, please contact us.

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