A $2 Billion Loss Spells Trouble in Dearborn
“To say ‘I’m frustrated’ is an understatement because the year could have been so much more for us at Ford,” CEO Jim Farley said of the net loss of $2 billion.
“While Toyota has been relatively frank about its (supply) problems, Ford has quietly halted factories and taken the financial hit that comes with not preparing Wall Street,” said analyst Sam Fiorani.
Either Ford has greater supply than the competition, or demand for its vehicles has waned, or it suffers from a bad combination of both.
After General Motors and Tesla both posted record profits for fiscal 2022, Ford Motor Company last week announced a net loss of $2 billion, and blamed cost issues and especially continuing computer chip shortages on results that disappointed Wall Street.
“We left about $2 billion profit on the table due to cost, and especially, to continued supply-chain issues,” CEO Jim Farley explained. “To say ‘I’m frustrated’ is an understatement because the year could have been so much more for us at Ford.”
CFO John Lawler added, “There’s still going to be volatility around chips.”
Initially, Asian automakers handled the semiconductor shortage much better than domestic companies, said Sam Fiorani, vice president for global vehicle forecasting at AutoForecast Solutions. But now those fortunes have largely reversed.
“While Toyota has been relatively frank about its (supply) problems, Ford has quietly halted factories and taken the financial hit that comes with not preparing Wall Street,” he said. “Getting in front of the problem, as many of its competition have done, would have helped.”
Ford stock took a 7.6% hit by the end of last week, The Wall Street Journal reported on Saturday, and by noon Monday it was off another 2%. The loss in value had more to do with Ford management’s failure to warn investors of a rough 2022 as much as the actual results.
Adjusted operating profit for the year was about $1.1 billion lower than what Ford had estimated for analysts in October. “Even that was the low end of the previous range of estimates it gave,” the Journal reported.
According to the newspaper’s analysis, Ford’s gross margin—profit relative to materials cost—has been lower than GM’s since 2016 or so, largely because it did not endure the same kind of thorough reorganization that GM did before emerging from its 2009 bankruptcy.
The semiconductor shortage did play a part in Ford’s poor 2022 showing in that it paid surcharges to suppliers and for almost-finished vehicles in the third quarter. But supply shortages have not hurt Ford as much as some competitors, when measuring the inventory available to potential customers.
“Days’ supply” of new vehicles on dealers’ lots and in-transit is the standard for measuring inventory. Pre-pandemic, 80 days’ was the norm for most mainstream, non-luxury models, but those inventory numbers plummeted industrywide during COVID-19. In 2022, the Ford brand had more cars and trucks to sell than the industry on average, according to Cox Automotive.
For the first quarter of 2022, the industry average was 34 days’ supply, while the Ford brand had 40 days’ worth. In the second quarter, the average rose to 35 days’, and Ford was also up by one day, to 41. For the third quarter, the industry average was 39 days’, Cox Automotive said, and Ford was up to 52 days’. By the fourth quarter, the industry average had improved to 56 days’, while Ford had 76 days’ supply.
Either Ford has greater supply than the competition, or demand for its vehicles has waned, or it suffers from a bad combination of both.
Ford’s loss last year compares with a $17.9 billion profit that Ford posted for 2021. Evidence suggests last year’s downturn has more to do with the cost issues than supply-chain troubles.
Ford’s results came days after Tesla announced it had earned $13.7 billion in 2022, and GM reported a $14.5 billion profit for last year. CEO Elon Musk acknowledged Tesla may face a shortage of chips and limit its production to 1.8 million vehicles globally, instead of the 2-million-plus it could build to meet demand.
GM regained first place in US sales from Toyota Motors North America (including Lexus), which held that position in 2021, after years of taking third-place behind Ford.
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