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Car Crash: Ford Issues Profit Warning, Says Turnaround Will Take Years

Following news that Ford is going "all in" on electric vehicles, the company issued a profit warning more than expected.

Ford Motor Co. warned profit will fall this year as Chief Executive Officer Jim Hackett spends heavily to catch up with rivals bringing electrified vehicles to market.

The U.S. automaker forecast adjusted earnings of $1.45 to $1.70 a share this year, down from about $1.78 last year. While Wall Street had been expecting a drop, the low end of the company’s guidance is worse than what analysts were anticipating.

Ford flagged its expectation for weaker earnings two days after Executive Chairman Bill Ford said the company founded by his grandfather is going “all in” on electric cars. The automaker kicked off the Detroit auto show by pledging to invest $11 billion to bring 40 electrified vehicles to market by 2022. Hackett, 62, last year took over an automaker that lacks a model to compete with cars like General Motors Co.’s Chevrolet Bolt or Tesla Inc.’s Model S.

The biggest factors contributing to Ford’s expectation for lower profit this year are the rising price of commodities, including steel and aluminum, and adverse effects from currency exchange rates, in part due to Brexit. Those costs represent a $1.6 billion headwind to Ford’s earnings this year, according to Chief Financial Officer Bob Shanks.

In addition to electrifying its lineup, Ford is reallocating investment toward sport utility vehicles amid slumping demand for passenger cars in its home market. The company projects it will boost the share of its sales from SUVs by 10 percentage points -- all at cars’ expense -- over the next couple years to cash in on more lucrative models that American consumers want.

Turnaround Will Take Years

Ford Motor Co on Tuesday estimated financial results for 2017 and 2018 that fell short of investor expectations, in a downbeat forecast that contrasted with a more positive outlook from rival automaker General Motors Co.

Ford Chief Financial Officer Bob Shanks told analysts at an investor conference in Detroit that higher costs for steel, aluminum, and other metals, as well as currency volatility, could cost the company $1.6 billion in 2018. Cost-cutting actions are underway and will have the biggest impact “in 2020 and later,” Shanks said.

“We are not satisfied by our performance,” he said. “We are excited about our future.”

Questions Abound

  1. If the price of commodities such as aluminum is a problem, why is the price of commodities not hitting GM? Is GM hedging better?
  2. How can one seriously discuss cost-cutting while doubling investment in electric vehicles to $11 billion?
  3. Are trucks and SUVs the wave of the future?
  4. What do millennials want and need?
  5. Looking five years into the future, what will autonomous vehicles do for fleet demand?
  6. Looking five years into the future, what will autonomous vehicles do for personal demand?

I do not have an answer to any of those questions.

I suspect both Ford and GM are clueless regarding questions 3-6.

That said, I expect Ford did get one thing correct: its heavy push on electric.

Yes, I am guessing.

Mike "Mish" Shedlock

If the price of commodities such as aluminum is a problem why is the price of commodities not hitting GM? Is GM hedging better?
How can one seriously discuss cost-cutting while doubling investment in electric vehicles to $11 billion?
Are trucks and SUVs the wave of the future?
What do millennials want and need?
Looking five years into the future, what will autonomous vehicles do for fleet demand?
Looking five years into the future, what will autonomous vehicles do for personal demand?

@Sechel. Agreed, American cars are the pits. The designs are awful, the quality is abysmal and you'd better buy some good roadside assistance cover cos you're gonna need it (regularly). When you have great Japanese and European vehicles to choose from why buy anything else?!

Oh, incentives ...

Ford is displaying classical herding mentality. They have been doing something different and feel they need to do the same as other companies. This is capitulation, a symptom of a market in its late stages. The government WILL eliminate subsidies for electrical vehicles in the next economic downturn, which will make those cars cost prohibitive. Ford doesn't realize it, but they are in the best position to survive in the long run.

The US auto industry has always had its ups and downs. All 3 of the remaining car makers have been bailed out at some point in their history. They won't cease to exist. Worst case scenario is they merge with another automaker or get government loans to stay afloat.

I'm hesitant on the future of electric cars. Not because of the cars themselves. It's because we don't have the infrastructure to support them. If 50 million vehicles require charging every day, our electric grid will collapse and electricity prices will skyrocket. Making them unaffordable and screwing our economy.

But no worries. It's Ford truck month (again)!
I have a feeling that all the car manufacturers are going to hit hard times soon, so look for stupid monthly fees and other unexpected expenses, especially with the fancy info-tainment systems. GM charges for On Star, Fiat-Chrysler charges for their uConnect system if you want the Internet connectivity functions and now it looks like BMW will charge for access to Apple CarPlay:
https://9to5mac.com/2018/01/16/bmw-carplay-subscription-based-pricing/

You can find a lot of articles about the extra load on the power grid with a 100% EV US Market. Bottom line: it's not that bad, especially when you consider that 99% of the vehicles can recharge on off hours actually smoothing out energy demand.

That said, A lot of articles bundle EV with Autonomous and Ride Share and these need to be picked apart just a bit.
EV: it's almost practical. There are a LOT of areas you cannot go in the US with an EV unless you are committing to a 4-8 hour charge every 200 miles, provided you can find a proper power source. Most destinations will not have more than a 120V, 1500W plug which means you have to wait days to recharge. If you stay in the urban/suburban areas you'll do much better.

Autonomous: I'm guessing this will take time. I suspect there will be a long time before an autonomous vehicle can understand what a dirt road is or how to read a perfectly snow covered street with no color contrasts. Again, these are suburban/rural issues and not as likely to be seen in Manhattan, Chicago, Los Angeles but will render Autonomous impractical at certain times. I hope they never attempt autonomous snow plows for just these reasons.

Ride Share: only practical in the most urban of areas. The demand for vehicles in suburban rush hour is extreme and there's zero tolerance for delays because you have to wait for a vehicle. There's also the problem of localizing the cars - that is, getting the shared cars in the right place at the right time for pickup. You'll have a lot of empty cars driving back to the suburbs for a later morning shift of passengers and then have to do it again later. Potentially you will have vehicles driving 3 trips to move two people in the morning and again at night - a 50% increase in traffic.
Using bike share as an example: I see a lot of trucks driving around Chicago loaded with bikes trying to get them to the right place. They haven't solved this in years.

No one wants these new glorified golf carts, but fear not, the gumnut will buy them. And with high enough tariffs, folks will eventually have no choice but to buy domestic junk. Planned obsolescence included at no extra charge.

Amazing, the misallocation of "Capital" wrought by cheap and free money!

"In addition to electrifying its lineup, Ford is reallocating investment toward sport utility vehicles amid slumping demand for passenger cars in its home market." Perfect timing. The SUV chart is going parabolic.

Maybe it's time to buy a new Civic, along with a few shares of CVX and XOM to keep it in fuel?

I @theLege My cougar as in the shop every six months starting in year 2, dumped it after only 6 years. Honda Accord made it 13 years until the dealer crashed it during a service appointment and my current car a BMW 3 series is now approaching year 13. Will be very difficult for me to ever go back to an American car.

The announcement about blowing $11bil on electric vehicles, are done specifically BECAUSE earnings forces cost cutting. In our money-for-nothing hype-age, asset pumping has already rendered the cost of inputs too high for anyone to earn anything. So instead of building something and attempting to sell it for a gain, the key is to “build” paper documents making silly promises of some utopia around the corner. Then let the Fed and the Government rob someone else to help feed the hype train.

answer to #1 is that Ford has a lot more aluminum content than GM. all aluminum F150, and Expedition, and I suspect others as well. aluminum structure cost is estimated at 80% higher than steel.

the push to go heavily into EV is foolish. GM and tesla are already getting killed with losses on the vehicle and that is with heavy gov't subsidies. gas prices would have to be multiples higher to offset the real vehicle cost difference, and then to switch to all electric would require a radical change in how people travel. If you make even one long distance trip a year, that would likely be a deal breaker for most people to go EV. who wants to make a 10 hour trip into a 12 or 13+ hour trip.

Ford has pledged to promote the United Nations 2030 Agenda for Sustainable Development, by highlighting our strategic alignment with the UN’s Sustainable Development Goals (SDGs), and communicating how our products and operations contribute toward achieving them. https://corporate.ford.com/microsites/sustainability-report-2016-17/strategy-governance/reporting/sdg.html

You are correct they have no answers to these questions. They are betting their companies on the cost reduction curve for ev’s, yet don’t know what they

Are or when or if they decline. The combination of scale, technology, learning and raw materials is nowhere modeled. “The regulators are forcing us”. It

Ford is bankrupt! Government better step in and take over. Oh wait. Ford still has $26b in cash, and they are still profitable. Maybe it's not all over for them, after all.

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