Ford's Earnings Show That Saving Money Can Be Expensive

Matt Posky
by Matt Posky

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.]

Matt Posky
Matt Posky

A staunch consumer advocate tracking industry trends and regulation. Before joining TTAC, Matt spent a decade working for marketing and research firms based in NYC. Clients included several of the world’s largest automakers, global tire brands, and aftermarket part suppliers. Dissatisfied with the corporate world and resentful of having to wear suits everyday, he pivoted to writing about cars. Since then, that man has become an ardent supporter of the right-to-repair movement, been interviewed on the auto industry by national radio broadcasts, driven more rental cars than anyone ever should, participated in amateur rallying events, and received the requisite minimum training as sanctioned by the SCCA. Handy with a wrench, Matt grew up surrounded by Detroit auto workers and managed to get a pizza delivery job before he was legally eligible. He later found himself driving box trucks through Manhattan, guaranteeing future sympathy for actual truckers. He continues to conduct research pertaining to the automotive sector as an independent contractor and has since moved back to his native Michigan, closer to where the cars are born. A contrarian, Matt claims to prefer understeer — stating that front and all-wheel drive vehicles cater best to his driving style.

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  • Dwford Dwford on Apr 26, 2019

    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?

    • See 2 previous
    • JimZ JimZ on Apr 27, 2019

      "I’m still trying to figure out where the billions of profits over the last decade got spent." reading the earnings report isn't that hard, it was even linked in the article: "Ended the quarter with $24.2B in cash and $35.2B in liquidity; both above targets" Plus there was that whole complete redesign of pretty much every vehicle architecture in the lineup; the oldest is the Flex which is about to go away but everything else was significantly re-designed (or all new) within the last decade. I dunno, seems like investing in new products and maintaining a healthy "rainy day fund" are good uses of those profits.

  • ToolGuy ToolGuy on Apr 26, 2019

    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.

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