Ford could face a doomsday scenario where no one wants its used cars (F)

Ford F150

Morgan Stanley analyst Adam Jonas published a research note on Monday in which he explored the complexity of Ford's "restructuring roadmap" under the company's new CEO Jim Hackett.

Ford has been steadily profitable since the recovery from the financial crisis began and avoided the bailouts and bankruptcies that befell General Motors and Chrysler in 2009, so one might ask why Ford needs to restructure. But Hackett is new on the job, and Ford's stock has been lagging the market and its sector, so a restructuring is what investors seem to be calling for.

The goal is to generate $12 billion in cost savings by 2022. Jonas scrutinizes a range of options, from layoffs to financial write-downs, but buried in the note is this: "We believe many of Ford's restructuring actions are meant to ensure the fitness of the company's operations during a highly uncertain time which may include a reduced value of its products in the second-hand market, particularly as Ford and its peers introduce superior technologies in critical areas such as connectivity, propulsion and automation."

"Fitness" is Hackett's terms for what Ford needs to do, taken from an investor presentation he gave earlier this month after his first 100 days in the job.

There's quite a nightmare scenario embedded in Jonas' wording. He suggests that when radically new and different vehicles, like electric and self-driving vehicles, begin to hit the market, the cars that lack these technologies will be abandoned. This will leave carmakers holding the bag for the plunging residual values of their "Auto 1.0" products.

It might not happen, of course. Electric cars were supposed to be on their way to 15%-20% of the global market by now; they currently make up about 1%. Self-driving vehicles are still largely in the experimental phase, and it's unclear whether consumers will be willing to shell out the thousands of dollars needed to equip existing vehicles with even just advanced cruise control, of the type that Tesla and Cadillac have rolled out.

But the markets want Ford to be ready for a used-car apocalypse regardless. And in fact that preparation might be valuable, as the used-car market is becoming flooded with vehicles that were sold during the record years of 2015 and 2016, when over 34 million new vehicles rolled off dealer lots in the US alone.

Ford shares were trading down slightly on Monday, to $12.

Ford Chart