3 Reasons Ford Motor Company's Stock Could Fall

Ford's current Fusion sedan has helped the Blue Oval to big gains in the U.S. market. But newer competitors could take a bite out of the Fusion's gains next year. Source: Ford Motor Company.

Is Ford stock headed for a fall?

Ford's stock has had a terrific run since the dark days of early 2009, when it was trading for less than $2 a share.

But every run comes to an end sooner or later. Or put another way, every company faces risks that could knock its business off course.

And consider this: In a year when many stocks have posted good gains, Ford is down about 1% since the beginning of 2014. Is it time for Ford investors to think about moving on?

If you're a Ford investor, or someone whose business depends on the company, it's worth keeping a close eye on the things most likely to hurt the company's bottom line -- and its share price. Here are three big ones.

Risk 1: How much growth is left in the U.S.?

More than anything else, rising U.S. auto sales have carried Ford since those dark days of 2009. Profits from Ford's North America region have dwarfed those of its overseas units over that period, and those profits have been the key driver of Ford's renaissance.

That's still true in 2014. This chart shows pre-tax earnings for each of Ford's regional business units, plus Ford's captive financing arm, through the first three quarters of this year.

Source: Ford Motor Company.

Ford is taking steps to improve its profitability overseas. It has launched a major restructuring effort in Europe that is well along, and a $5 billion Asian expansion is already bearing fruit (and poised for significant future growth).

For at least the near future, Ford's prospects will be heavily tied to U.S. auto sales -- but it's looking likely that those sales are peaking.

As this chart clearly shows, new-vehicle sales in the U.S. have made a nice recovery since the economic crisis in 2008, but they're now very close to the plateau that was considered "normal" before the crisis.

Source: Automotive News (historical figures), Edmunds (2014 estimate).

That suggests there isn't a lot of intrinsic growth left in the market -- or put another way, year-over-year gains from here on out may need to be taken from rivals.

That's where Ford could lose ground. Ford's overhauled product lineup is still quite strong, but General Motors is mounting an aggressive new-product push over the next couple of years that could leave Ford a bit behind. Meanwhile, Toyota is booking huge profits thanks to favorable exchange-rate swings, and Toyota executives have hinted that it will put some of those profits to use in pursuit of U.S. market-share gains next year.

The upshot: A slowing market and strong competitors could put pressure on Ford's U.S. sales over the next couple of years -- and that would impact the bottom line in Ford's important North America unit.

Risk 2: Europe could continue to be a big drag

Ford's European unit has lost big money in recent years: $1.75 billion in 2012, $1.6 billion in 2013, and $619 million so far in 2014. But for months, Ford executives confidently asserted that that would change in 2015, when the unit returned to profitability.

Ford abruptly changed course on that guidance in September. It's now saying that a loss of $250 million or so is likely next year. The change comes largely because of deteriorating economic conditions in Russia, where Ford has made significant investments in long-term growth.

Ford also says it'll face a larger-than-expected pension shortfall in Europe. That's because European economies, and specifically European interest rates, haven't recovered as quickly as Ford expected -- meaning the income-generating investments in its pension funds aren't generating as much income as projected.

A key part of the bull case for Ford stock is the restructuring in Europe: Even a $250 million loss next year represents a big improvement over the billions lost since 2011. But if Russia's economic fundamentals deteriorate further, or if Europe as a whole slides back into recession, Ford's long-hoped-for profits could continue to be just a hope for several more quarters.

The upshot: Continued losses in Europe would hurt Ford's bottom line -- and its stock price.

Risk 3: Is China slowing?

Through the first nine months of 2014, Ford's sales in China were up 26% year over year, following a 49% increase in 2013. But in the last couple of months, things have slowed dramatically: Ford's China sales were up just 2% in November.

That's not just a Ford problem. There's some evidence to suggest China's auto market is slowing. China may even be slipping toward a recession. That's bad timing for Ford; it's spending almost $5 billion on an aggressive Asian expansion. Ford has six new factories up and running in Asia, and four more under construction that will be completed over the next year.

Long term, those factories will almost certainly pay off big for Ford. Its products have hit a "sweet spot" with Chinese consumers, and its long-term future in the country still looks bright. But in the short term, a slowing Chinese auto market could leave those shiny new factories running well below capacity, making them an expensive burden for a while.

The upshot: Any sneeze in China's economy could give Ford's bottom line a head cold for at least a few quarters.

The article 3 Reasons Ford Motor Company's Stock Could Fall originally appeared on Fool.com.

John Rosevear owns shares of Ford and General Motors. The Motley Fool recommends Ford, General Motors, and Tesla Motors. The Motley Fool owns shares of Ford and Tesla Motors. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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