Why is Ford Stock Dropping?

The age of the depression in the stock market is currently active as part of the seasonal cycle. Under the current circumstances, the stocks of Ford Motor Company experienced a 6% drop recently. The crash of the stock prices occurred after the Chinese government issued the order to reactivate the strict COVID sanctions. In addition, the People’s Bank of China has also decided to raise interest rates.

The response of the Chinese government is a preventive measure to contain the spread of the COVID pandemic and also contain the increasing damages of the international wave of inflation. Over the years, China has become a prominent supply chain partner for automotive companies. Under such circumstances, it is not a big surprise that investors are leaning towards liquidating their stocks.

CPI Report

As per the updated CPI report issued last Friday, the projections are not looking very optimistic. The report indicated an 8.6% increase on a Year-over-Year basis for May alone. As a response to the collective financial picture, the stock traders are speculating a 3.3% yield from Treasury bonds for ten years benchmark. At the start of the year, the benchmark was set at 1.76%.

It is worth mentioning that with an increase in the government bonds and interest rates, it becomes more difficult for commercial and individual lenders to draw a loan for buying houses/vehicles or expanding their businesses. Since vehicles are considered semi-luxury goods, there is an increased chance of a decline in demand for these entities during inflation pressure.

Ford Credit’s Productivity

The Ford Motor Company is looking at rising costs of raw materials, cancelation of orders from Chinese factories, and curbing demand in the consumer market. The price hike can also impact Ford Credit’s productivity. The Ford Credit allows the users to draw leasing contracts and other financing options to facilitate their purchases.

This department has generated around $46 billion in profits exclusive of taxes in the last 20 years. The credit quality for Ford Credit is valued in terms of its Loss-to-receivables ratio. For the first quarter, LTR was estimated to be 0.08%, while for the second quarter, it remained at 0.22%. Since LTR accounts for the loss of credit write-offs, it means lower projections are better.

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