Ford's Earnings Show That Saving Money Can Be Expensive
Automakers find themselves a bit of a pickle right now. The shift towards “mobility” has resulted in high development costs for electric and autonomous vehicles in the midst of stagnating sales growth. There’s also a trade war hurting global demand and impacting supply chains. Ultimately, this resulted in a lackluster Q1 for many manufacturers.
Ford’s situation was symbolic of the industry’s general plight, per its 34-percent decline in net revenue for the first quarter of 2019, but it wasn’t without a warm ray of hope. The company posted a 12-percent increase in earnings (before before interest and taxes) over the same period due to North America’s consistent desire to own SUVs, crossovers, and pickups. Ford’s share price also improved, hitting the $10 mark for the first time since August of 2018 on Friday.
With all that good news, many probably wonder what caused net revenue to climb into the toilet like an overly curious ferret. As it turns out, saving money can be pretty expensive.
Ford’s in the midst of a rather massive restructuring phase at the moment. With the global sales ceiling coming into view for the entire industry, the Blue Oval was inclined to launch a $11-billion restructuring program. The opening lines of Ford’s latest earnings report dealt with addressing the $600 million decline in net income related to “special charges.”
Those included things like ending heavy truck operations in South America, altering the firm’s European operations, and pulling out of Russia. Roughly $24 million also went to the ongoing layoffs of salaried employees in North America, though Ford previously claimed staffing reductions (at least in its home market) would soon be over.
Killing the Focus also cost Ford $67 million, while closing the failed Chariot urban-shuttle program tacked on another $11 million. Losses tied to increased investment for “mobility services and autonomous vehicle business development” totaled another $288 million before taxes.
The automaker claims all of these expensive items snowball into billions of savings/profit by the end of the year (okay, maybe not the mobility stuff). Ford noted that its European operations improved from the previous quarter and are now profitable. Ford Credit also posted an $801 million profit in Q1, taking in cash in volumes it hasn’t seen in nearly a decade.
“With a solid plan in place, we promised 2019 would be a year of action and execution for Ford, and that’s what we delivered in the first quarter,” said Jim Hackett, Ford president and CEO, during the company’s Q1 earnings announcement. “Our global team continues to restlessly strive to improve our operational fitness, delight customers with ever-improving vehicles and services, and prepare Ford to win in the future. Our goal remains to become the world’s most trusted company, designing smart vehicles for a smart world.”
Market analysts seem torn on whether or not Ford has finally righted the ship; the general consensus is that this report is a very good sign. What comes next is key.
[Image: Ford Motor Co.]
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I'm still trying to figure out where the billions of profits over the last decade got spent. They talk about expensive EV vehicle development costs, but other than the Mach E and the F150 EV, they seem to be outsourcing at least one vehicle to Rivian, and plan to borrow VWs EV platform for others. So Ford isn't really developing a fleet of EVs at its own expense, just some plug in versions of the gas models. Where's all the money gone?
Restless: unable to rest or relax as a result of anxiety or boredom. synonyms: uneasy, ill at ease, restive, fidgety, edgy, on edge, tense, worked up, nervous, agitated, anxious, on tenterhooks, keyed up, apprehensive, unquiet, impatient Sounds like a perfect working environment for optimum decision-making and engendering trust. /S "designing smart vehicles for a smart world" - Look around you and tell me if the world you see is generally smart or dumb. (Designing dumb vehicles for a dumb world is a proven, winning strategy.) - Design all you want, but you also have to build, sell and service them.