Thursday, March 30, 2023
HomeUS NewsFord 4Q profit falls 90%, company says more cost cuts ahead

Ford 4Q profit falls 90%, company says more cost cuts ahead

DETROIT (AP) — Ford Motor Co. reported Thursday that its fourth-quarter net income fell 90% year over year, prompting company officials to say the automaker’s costs were too high and pledged to stay in that one years to tighten their belts.

CEO Jim Farley said Ford should have done better last year, and it left $2 billion in profits under its control on the table. He said Ford will correct this this year with improved urgency and execution.

“These are the plain facts and to say I’m frustrated is an understatement because the year could have been so much more for us at Ford,” Farley said.

The company, he said, is transforming its product development, manufacturing and supply chain management to reduce costs while also transitioning to electric vehicles.

“We have ingrained problems in our industrial system that have proven difficult to eradicate,” he said. “The strength of our products and revenue has long masked this dysfunctionality.”

Global shortages of computer chips and other parts hit Ford hard late last year, costing it from producing about 100,000 vehicles that could have been sold, Chief Financial Officer John Lawler told reporters.

“Our cost structure is not competitive and our quality is not where it should be,” Lawler said. He and Farley said there will be more layoffs and the company needs to cut manufacturing and warranty costs.

Lawler said about $1 billion of the $2 billion in lost profits was due to reduced production and lost sales, and the other $1 billion was operating expenses. He attributed about 60% of the production problem to the chip shortage, with the rest coming from parts suppliers struggling to ramp up factories.

“It’s something we need to do better at managing,” he said, adding that it was a “hand-to-hand fight” with chips secured.

To fix the problem, Ford will work with chip suppliers and brokers and redesign car computers to use different chips that are more common. “It’s about being as flexible as possible,” he said.

For this year, Lawler sees industry sales volumes in the US growing to about 15 million vehicles, which should help Ford with increasing sales, particularly for its newer models, Lawler said.

Lawler also said Ford sees a mild recession in the US and a moderate one in Europe this year.

But in addition to the recessions, Ford sees higher interest rates, lower pension income, lower profits for its lending division and currency fluctuations as headwinds this year.

The company sees vehicle prices down about 5% this year as automakers increase rebates and other incentives while vehicle supply improves. Some of that will come from dealers and some from Ford, Lawler said.

The Dearborn, Michigan automaker said it made $1.26 billion from October through December and grew sales 17% to $44 billion. The company made an adjusted 51 cents per share, underperforming Wall Street’s estimate of 62 cents.

However, quarterly sales topped estimates of $41.39 billion, according to analysts polled by FactSet.

Certainly, earnings in the fourth quarter of 2021 were inflated by one-off items like Ford’s $8.2 billion increase in its investment in electric-vehicle startup Rivian as its share price soared.

For all of 2022, Ford posted a net loss of $2 billion, mostly due to one-time items. During the year, the investment in Rivian fell $7.4 billion as the stock’s value plummeted. The company also saw its stake in autonomous vehicle unit Argo AI, which was dissolved last year, fall by $2.7 billion.

Ford declared a dividend of 80 cents per share for the first quarter, attributing it to strong cash flow and a gain on the sale of its Rivian investment.

Ford, which announced earnings after Thursday’s closing bell, saw its shares fall 6.3% in after-hours trading.

Before taxes, the company made $10.4 billion last year, below its guidance of $11.5 billion.

The company expects pre-tax income of $9 billion to $11 billion this year, down from last year’s estimates.

North America pre-tax income increased $1.8 billion to $9.2 billion. That means about 56,000 unionized factory workers will receive $9,176 in profit-sharing checks in March, about $1,800 more than last year.

Ford’s sales in the U.S., its most profitable market, fell 5% in the fourth quarter as the company, along with other automakers, was hit hard by parts shortages.

Strong pricing for Ford vehicles helped offset declining sales. According to Edmunds.com, customers paid an average of $56,143 for company vehicles in the fourth quarter, up about 10% year over year. Many of those sales were high-end trucks and SUVs.


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