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Will Ford Show Us Anything on Wednesday that We Don't Already Know?

Tickers in this article: F GM TM

Ford  is set to announce earnings in two days. Judging by market returns against competitors, investors are not expecting any big surprises from the auto giant.

Heres how Ford has done against competitors since 2010, the year in which auto sales bottomed out.

Overall, since 2010, Ford is up about 5%, lagging Toyota , GM , and Honda. Over the same period, Toyota is up 59%, GM is up 16%, and Honda is up 11% (all figures are on a monthly average basis). On the positive side, Ford has outperformed Nissan (flat) and Peugeot (down 63%).

U.S. Auto Sales (1)

What could push Ford higher on Wednesday?

On the whole, Ford needs the market to arrive at two risky conclusions for the stock to become an outperformer.

First, Ford needs to show that it is able to gain market share from competitors. Its certainly achievable. Fords growth continues to be driven by the best-selling vehicle in the worldthe Ford Focus. Sales of the Focus grew by 16% from January to September 2013, according to recently released figures from Polk, propelled largely by strength in China. In addition to the strength of the Focus, the January earnings release will give investors a chance to see how well the new F-150 is doing. Ford needs the F-150 to surprise on the upside, not just keep its narrowing lead as the bestselling truck in the world. Based upon reviews from the Detroit auto show, that might actually happen.

Second, Ford needs market investors to believe that the pie will continue to get bigger. This second half might actually be the bigger sell.

U.S. auto sales are shown below.

The chart clearly shows that the automotive market has recovered from the 2008 and 2009 downturn. The most recent BEA figure has annual auto sales at 15.6 million, about 6.4 million above the February 2009 low of 9.2 million.

Interestingly, the strong automotive market recovery left some things in the pastand Fords stock price is one of them. This is the issue. Even if the economy continues to improve, with auto sales gaining, say, another 2 million in annual sales (which would put auto sales at their 2005/2006 peak levels), Ford may only capture at best 20% based upon their current market share (WSJ), or another 400,000 vehicles. The 400,000 represents a sales volume increase of around 16%. So, the upside to this weeks announcement is at best some percentage of the 16%.

On the downside, Ford has to worry about investors getting nervous about the entire economy, representing a downside risk of at least 10%.

Auto Companies, Appreciation Since 2010 (1)

In summary, Ford needs market participants to come to two conclusions for the stock price to appreciate any significant amount. First, Ford must show that it is gaining market share from Toyota, GM, and Honda. Second, Ford must convince investors that the auto market as a whole is due for continued expansion in 2014. Both are far from in the bag.