Vehicles at the Ford assembly plant in Oakville, Ont.Fred Lum/The Globe and Mail
What does the North American automotive market look like at the top? On Wednesday, investors had a glimpse: Shares in Ford Motor Co. fell more than 8 per cent in early trading after the automaker issued a profit warning.
Of course, the decline comes after a remarkable period of recovery. Ford's quarterly earnings have risen from a loss of $3.89 (U.S.) a share at the depths of the financial crisis and global recession to 44 cents a share in the third quarter of this year. Sales have risen early 48 per cent over this period and the share price has surged 880 per cent – including a 29 per cent gain this year, prior to Wednesday's sudden retreat.
The dip – the worst one-day performance in two years, according to Bloomberg News – followed news that Ford had lowered its profit expectations for 2014. It expects that operating profits at its North American operations will be between 8 and 9 per cent of sales, down from a high of 12 per cent last year.
For sure, the news isn't all grim. The profit warning is due to the planned introduction of 23 new vehicles in 2014, or more than double the number of vehicle introductions this year. New vehicles can be costly because of plant updates.
Still, it raises some concerns that the best days of the automotive rebound are over, leaving investors to mull where gains can possibly come from in the years ahead. U.S. auto sales bottomed out at 10.4 million in 2009; they have rebounded to a six-and-a-half year high in November, of 16.4 million (at an annualized rate).
At the same time, competition is heating up. The Wall Street Journal noted that Volkswagen AG, Daimler AG and BMW AG are pushing new modes, while the decline in the value of the yen is providing a nice boost to the likes of Toyota, Honda and Nissan.
Ford investors have enjoyed a fine ride during the bull market. But car makers have always been a cyclical investment – and Wednesday's news suggests that they still are.
David Berman