Ford's recent recall of 2.4 million vehicles for a door-latch issue will cost the automaker $600 million in third-quarter profits.
Ford Motor Co. is the latest manufacturer to feel the financial impact of the industry’s crackdown on safety problems.
Ford has slashed by $600 million its projected pre-tax profits for this year, to $10.2 billion, as a result of an expanded recall covering vehicles whose doors could unexpectedly fly open while moving. The make last week added another 1.5 million vehicles to that recall, bringing the total number of models affected to 2.4 million.
The industry saw safety-related recalls reach record levels for the last two years in a row and appears on pace to near, if not exceed, the record again in 2016. That has hammered the bottom line for dozens of automakers, as well as key suppliers such as Takata.
The Japanese supplier is struggling to survive as it deals with what will be the recall of more than 100 million of its airbags because of a defect that could cause them to malfunction in crashes.
Ford also mentioned that management expects its total company adjusted pre-tax profit in the third-quarter to be roughly 10% of its full-year results. For investors, it comes at a rough time because the third-quarter was already going to be negatively impacted by costs associated with the Super Duty launch, the website Motley Fool observed.
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The disclosure, however, appears likely to put more pressure on Ford stock, which has been trading at around $12.57. At that level, Ford’s stock is down -21.84% from its 52-week high of $15.84, but above its 52-week low of $11.02.
Ford’s third-quarter adjusted pre-tax profit is expected to be about $1 billion, down about 60% from $2.7 billion a year earlier when Ford set a company record for any third quarter’s adjusted pre-tax profit.
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Ford Chief Financial Officer Bob Shanks said in July that the second half of 2016 will not be as profitable as the first half of this year, when it recorded $6.8 billion of adjusted pre-tax profit. That is partly because of beneficial factors, including stronger than expected U.S. sales that will not happen again in the second half of the year and the expense of the rollout of Ford’s Super Duty large pickup trucks.
Ford is moving to re-assure investors about the company’s path, which includes investment in ride-sharing and autonomous technology ventures that are expected to defined the auto industry in the future.
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Ford is also planning an “Investors Day” in Dearborn in an effort to reassure investors about the company’s future outlook.