On a somewhat flat trading session, shares of Ford Motor Company (NYSE:F) abruptly dropped lower by 1.77%. Strangely, in a space that typically trades very close, General Motors Company (NYSE:GM) fell lower by just 0.5%. The drop is related to news concerning a 50-year old tariff, but is this news fundamentally important, and does the loss create a buying opportunity?
What’s The News?
News broke early Monday morning that the U.S. might end a 50-year tariff that analysts believe has created an unfair advantage for U.S. truck manufacturers.
The tariff requires a 25% fee paid by foreign manufacturers Nissan, Honda, and Toyota. However, this tariff is removed when trucks are manufactured on U.S. soil.
As a result, all three companies do have manufacturing plants in the U.S., but due to being Japanese companies, none are able to compete with either General Motors Company (NYSE:GM) or Ford Motor Company (NYSE:F) in the U.S in terms of quantity or scaled production. Thus, analysts believe this tariff gives General Motors Company (NYSE:GM) and Ford an unfair pricing advantage due to the lack of competition, and is why price increases for U.S. trucks have doubled the rate for cars since 2005.
What Does This Mean?
If this tariff is ended, some believe the truck market would become more competitive, and that both volume and sales per unit could decline for market leaders Ford Motor Company (NYSE:F) and General Motors Company (NYSE:GM).
On Monday, we could see the result of this fear. Ford Motor Company (NYSE:F)’s F-Series has broken records or created multi-year highs in just about every month this year and is the best selling pickup. Moreover, the F-Series has been largely responsible for Ford Motor Company (NYSE:F)’s double digit top-line growth.
General Motors Company (NYSE:GM) just recently launched its new Silverado, which has sold 284,666 models this year. While sales are strong, the Silverado significantly lags the F-Series’ 427,935 units in 2013. Therefore, Ford Motor Company (NYSE:F)’s excessive loss relative to General Motors Company (NYSE:GM) following this news is reasonable, as Ford has the most to lose.
Should You Buy?
Despite this news, I believe that any weakness in shares of either company should be viewed as a buying opportunity.