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Ford shares fell sharply late on Wednesday after the automaker reported second-quarter earnings far below analyst expectations, citing an unexpected spike in costs for fixing faulty cars under warranty.
The carmaker reported adjusted earnings of 46 cents per share in the second quarter, compared to the 68 cents per share anticipated by analysts polled by FactSet. Shares in the US carmaker were down nearly 12 per cent in after-hours trading.
Ford has struggled to control its warranty costs for years, with executives citing the costs of servicing vehicles as a factor contributing to poor performance a decade ago. The company has said it is testing cars and trucks more thoroughly as it attempts to lessen the perennial problem.
US carmakers are facing increasingly difficult conditions, as discounting creeps back after several years of pandemic-era pricing power driven by an insufficient supply of cars to meet demand. High interest rates are driving up car payments, making vehicles less affordable to would-be buyers, and adding to pressure on Ford in particular at a time when demand for its electric vehicles is slowing.
The hit to profits was “primarily about warranty”, chief financial officer John Lawler told reporters. Warranty costs rose by $800mn from the first quarter to the second quarter, and “that is an increase that was not planned”.
The company is trying to cut costs and cut the number of models it makes to reduce the complexity of its manufacturing operations. But Lawler noted, “the process for transformation on this scale is going to be bumpy”.
The carmaker discovered quality problems during the second quarter and dispatched technicians to customers’ homes to repair their cars and trucks. A Ford spokesman said the problems affected primarily older vehicles, from model year 2021 or earlier.
But Lawler said the company was seeing fewer quality problems for new cars during their first three months on the road, suggesting warranty costs will decline in the future.
“Quality and warranty, there’s a lag between the two,” he said. “Our quality is improving . . . That’s going to pay dividends for us from a quality standpoint down the road.”
Adjusted operating earnings fell 26 per cent compared to the second quarter of 2023, to $2.8bn. A day earlier rival General Motors reported its own adjusted operating earnings had risen 37 per cent to $4.4bn.
Ford reiterated its guidance for the year, with adjusted operating earnings expected to fall between $10bn and $12bn.
Still, “this was a brutal quarter for Ford”, said Wedbush analyst Dan Ives. “Especially in light of the strong GM numbers”.
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