Bloomberg reports Ford Warns Profit Will Drop This Year.

Ford Motor Co. warned profit will fall this year as Chief Executive Officer Jim Hackett spends heavily to catch up with rivals bringing electrified vehicles to market.

The U.S. automaker forecast adjusted earnings of $1.45 to $1.70 a share this year, down from about $1.78 last year. While Wall Street had been expecting a drop, the low end of the company’s guidance is worse than what analysts were anticipating.

Ford flagged its expectation for weaker earnings two days after Executive Chairman Bill Ford said the company founded by his grandfather is going “all in” on electric cars. The automaker kicked off the Detroit auto show by pledging to invest $11 billion to bring 40 electrified vehicles to market by 2022. Hackett, 62, last year took over an automaker that lacks a model to compete with cars like General Motors Co.’s Chevrolet Bolt or Tesla Inc.’s Model S.

The biggest factors contributing to Ford’s expectation for lower profit this year are the rising price of commodities, including steel and aluminum, and adverse effects from currency exchange rates, in part due to Brexit. Those costs represent a $1.6 billion headwind to Ford’s earnings this year, according to Chief Financial Officer Bob Shanks.

In addition to electrifying its lineup, Ford is reallocating investment toward sport utility vehicles amid slumping demand for passenger cars in its home market. The company projects it will boost the share of its sales from SUVs by 10 percentage points -- all at cars’ expense -- over the next couple years to cash in on more lucrative models that American consumers want.

Turnaround Will Take Years

Reuters reports Ford Gives Disappointing Outlook, Says Turnaround to Take Years.

Ford Motor Co on Tuesday estimated financial results for 2017 and 2018 that fell short of investor expectations, in a downbeat forecast that contrasted with a more positive outlook from rival automaker General Motors Co.

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Ford Chief Financial Officer Bob Shanks told analysts at an investor conference in Detroit that higher costs for steel, aluminum, and other metals, as well as currency volatility, could cost the company $1.6 billion in 2018. Cost-cutting actions are underway and will have the biggest impact “in 2020 and later,” Shanks said.

“We are not satisfied by our performance,” he said. “We are excited about our future.”

Questions Abound

  1. If the price of commodities such as aluminum is a problem, why is the price of commodities not hitting GM? Is GM hedging better?
  2. How can one seriously discuss cost-cutting while doubling investment in electric vehicles to $11 billion?
  3. Are trucks and SUVs the wave of the future?
  4. What do millennials want and need?
  5. Looking five years into the future, what will autonomous vehicles do for fleet demand?
  6. Looking five years into the future, what will autonomous vehicles do for personal demand?

I do not have an answer to any of those questions.

I suspect both Ford and GM are clueless regarding questions 3-6.

That said, I expect Ford did get one thing correct: its heavy push on electric.

Yes, I am guessing.

Mike "Mish" Shedlock

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