Yesterday Ford (NYSE: F) made headlines after saying they would be profitable in North American even if SAAR fell to 11 million.
While this is an impressive statement, maybe the takeaway is that SAAR could actually fall to 11 million! That would be down a whopping 37% from 2015 levels!
According to UBS analyst Colin Langan, in year one of the downturn, Ford believes that the resulting 37% loss in dealer volumes would be offset by $1 billion in lower manufacturing costs and $2 billion in lower profit-sharing and lower other costs. These cost actions would allow Ford to remain profitable. In year two, Ford expects that the non-reoccurrence of dealer stock reductions would lead to improving year-over-year probability.
It’s nice to know Ford has a plan in case auto sales collapse, but do shareholders really want to stick it out in a collapsing auto environment? Also, one begs to asks: Does GM (NYSE: GM) have a plan? How about Fiat Chrysler (NYSE: FCAU)?
Data suggests subprime auto credit is the next bubble to burst. In February, borrowers 60 days or more late on their car payment rose 11.6% and total delinquencies rose to 5.16%. If the subprime auto market does bust then a 11 million SAAR number could become a reality sooner rather than later.