The 2019 Ford Ranger midsize pickup has electronic off-road systems that just debuted in the F-150 Raptor.
Detroit Free Press
Ford Motor Co. and its competitors have warned for weeks that their finances are teetering on the brink of uncertainty as a global pandemic continues to brutalize the U.S. economy and bring manufacturing to a standstill.
While the current landscape is grim, coming months promise to be unrelenting.
The cold reality for Ford: On Tuesday it reported a $2 billion loss in the first three months of 2020.
This is Ford’s first quarterly earnings net loss since April 2009 during the Great Recession.
The company reported Tuesday that first-quarter earnings before interest and taxes — adjusted EBIT — was negative $632 million, down from a positive $2.4 billion in the first quarter of 2019 and $2.2 billion a year earlier. Net income was negative $2 billion, down from a positive $1.1 billion in the same quarter last year, when it slipped from $1.7 billion in 2018.
Tim Stone, chief financial officer at Ford, told reporters on a conference call Tuesday that the company is confident it has enough money to operate “through the end of the year.”
Ford ends the quarter with $34 billion in cash on hand and $35 billion in liquidity.
A year ago, Ford had $24 billion in cash on hand and $35 million in liquidity.
“I’m more confident than ever in what we’re going to accomplish in the future,” Stone said, noting that the company is cutting marketing, advertising, deferring costs and working to shore up spending wherever possible.
He declined to forecast cash flow details in coming months, saying only that he was optimistic that the team has the situation under control.
Possible merger for Ford?
Adam Jonas, a respected automotive analyst at Morgan Stanley, said the time is now for a “strategic discussion” among Ford board members and top executives about consolidation or a merger in light of the intense demands for cash and liquidity over the next year or two – possibly with Volkswagen.
“They have to reassess: ‘What are we in China? What are we really fighting for in Europe?'” Jonas said during an Automotive News podcast aired Monday. “We don’t think they can necessarily do what some of their Detroit brethren have done in Europe in terms of a full exit so quickly. But those things have got to be looked at . … ‘Are we a global automaker anymore?’ I know that might be a tough pill to swallow when you’re from Ford. … But you’ve just got to rip the Band-Aid off.”
Ford and VW began a limited collaboration in January 2019, centered on development of commercial vans and pickups in certain markets starting in 2022, and expanded their relationship in July to partner on autonomous driving and electrification.
The companies have remained fiercely independent, noting they are competitors and the deal involved no “cross ownership.”
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What is Ford outside US?
But the market may force change, Jonas said. He questioned whether the world needs dozens of automakers globally, rather than maybe just 10.
“So that Ford-Volkswagen relationship, we think the importance of where that’s really going is elevated,” Jonas said. “It doesn’t have to be a full merger, although I wouldn’t rule anything out. But that strategic fit, geographic fit of – Volkswagen’s not super relevant in the United States, frankly, given their size and global scale. And then, what is Ford outside of the United States? I think even by their own admission, not much.”
Ford and Volkswagen spokespersons declined to comment on Tuesday.
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For now, Ford and the Detroit Three automakers will continue to struggle as they and other industries navigate the economic train wreck created by COVID-19.
Ford CEO Jim Hackett told investors on a call after release of the earnings report that Ford has lost 11 colleagues in the U.S. and the United Kingdom to the highly contagious coronavirus. Now the company needs to emerge from the pandemic “to build a brighter future” by focusing on operational excellence.
Jim Farley, chief operating officer, said, “I know we’ll come out of this a lot stronger. We need to be agile and have a bias toward action and be very transparent.”
He outlined strategies that account for pandemic challenges, including selling one-third of vehicles online in China already. “In the face of significant demand disruption, Ford China delivered year over year improvements. … The actions we took in China have become best practice for us.”
Ford sees opportunity to reassess its growth plan and seize on lifestyle changes inspired by the pandemic, affecting “how customers will live and work for years to come,” Farley said. “There is no grace period for transforming Ford.”
But the second quarter is expected to be brutal, with Stone forecasting a possible $5 billion loss. The automaker sees COVID-19 fallout as worsening before it improves.
Ford sales dip, but Lincoln gets lift
When Ford reported its earnings for the first quarter of 2020 on Tuesday, the financials reflected a dip in Ford vehicle sales and a slight spike in Lincoln sales, driven by the Aviator SUV and the Continental sedan.
Car buyers haven’t been shy about parting with money, according to Kelley Blue Book:
- Ford is selling fewer vehicles at a higher profit per customer, with price tags up 4% for a Ford and up 8% for a Lincoln.
- The average transaction price for a Ford is $43,311, due mostly to the Explorer, Escape and Mustang. The average cost of the F-Series held steady at $51,585.
- The average transaction price of a Lincoln was $58,503, influenced mostly by the Aviator with an average price of $67,863. That’s the second highest transaction price behind the Navigator at nearly $90,000.
It is highly unusual for Ford to lose money in North America, where consumer spending drives company profits. The company’s market share is holding steady.
Meanwhile, Ford Credit saw earnings of $30 million, compared to $801 million in 2019, confirmed spokesman Brad Carroll. “We’re increasing our credit loss reserve by $486 million due to COVID-19.”
Off-lease auction car values are dropping, and that has impact, Stone explained to investors. “We do expect used vehicle markets to normalize over time.”
The automaker reported a first quarter loss of 23 cents per share, adjusted, or a loss of 50 cents per share diluted, missing Wall Street analyst expectations.
Hackett has been talking about the company’s “fitness” since he took the job in May 2017, promising to restructure the 116-year-old company in a way that eliminates waste and enhances strengths, and he praised the shift away from sedans and toward technology when talking to investors.
Cox Automotive data illustrated a grim overall landscape:
- Ford sold 514,526 vehicles during the first three months of the year, down 11% from 2019. The Ford brand dropped 12% while Lincoln spiked 2%, one of the few brands in the entire auto industry to report an increase.
- The Ford F-Series, which is scheduled for a redesign this year, saw a 13% sales drop. The new Escape plummeted 21% for its lowest volume of any first quarter in at least five years. Ford Expedition dropped 9%; the new Ford Explorer, stalled by production problems, dropped 9%. Ford Edge slipped 4%.
- A key area of strength is again the Ford commercial van business, which isn’t hurt by the surge in home deliveries during a pandemic. Sales of the full-size E-Series vans were up 122% to more than 20,000 units sold while sales of the full-size Transit van jumped 16%. The smaller Transit Connect van, however, fell 15%.
No Rivian deal
Also Tuesday, Ford and Rivian put their plans on ice indefinitely to jointly develop a Lincoln-branded electric vehicle. The current economy has created new and unexpected challenges, so this particular project is “eliminated,” said Angie Kozleski, Lincoln spokeswoman. “The environment is changing rapidly. Just as any prudent business would do, we continue to review and adjust our plans accordingly.”
Lincoln officials informed their U.S. dealers via conference calls on Tuesday afternoon, saying Lincoln is still committed to having its own electric vehicle one day, she said.
In 2019, Ford invested $500 million in Rivian. Then in January of this year, Ford announced its plans for the Lincoln project.
“Our partnership with Rivian remains strong and unchanged,” Kozleski told the Free Press.
‘Cash is king’
David Kudla, CEO and chief investment strategist with Mainstay Capital Management, a Grand Blanc investment adviser who manages $2.7 billion in assets for clients who include many Ford employees, noted Ford proactively alerted investors that revenue for the first three quarters of the year would fall below expectations at around $34 billion along with a net loss of about $2 billion.
Now people are eagerly waiting to hear more about factories reopening and product launches, he said. Ford has the Ford F-150, Bronco and Mustang Mach-E planned. The company has declined to reveal how launches have been impacted though media briefings have been postponed indefinitely.
“Cash is king for industrial companies during a crisis, and we expect that the company’s cash burn will be the new point of focus,” Kudla said. “Ford’s management has done a commendable job bolstering their balance sheet by drawing down credit lines and suspending shareholder return programs.”
One year ago, market analyst Jon Gabrielsen, who tracks industry trends for automotive clients, predicted that Ford needed to take conservative measures despite upbeat predictions from Ford executives.
“Ford faces a series of headwinds including a likely beginning of auto cycle downturns in North America and Europe, tariffs, Mexican border slowdowns and threatened border closings, a China that very well may not turn back up in the second half, continual random saber-rattling from Washington, D.C., an environment of general business uncertainty and anxiety, and UAW and Unifor contract negotiations,” he said.
As it turned out, Gabrielsen identified just about every challenge over the past year.
Recession has been a whispered concern but no one ever considered pandemic.
Michelle Krebs, executive analyst at the online marketplace Autotrader.com, said, “We are seeing some positive signs of recovery, but we are in dynamic and evolving situation, making it impossible to predict the future. The virus and how we manage it will determine the future.”
Meanwhile, elected officials know things are bleak.
U.S. Rep. Debbie Dingell, a Democrat from Dearborn, told the Free Press on Tuesday, “What we’re trying to do now is work with the ecosystem, trying to understand the impact of COVID on the autoworkers, the manufacturers, the supplier community, the dealers — and figure out what kind of support they need.”
Wall Street responded instantly to the Ford earnings forecast of a second quarter loss exceeding $5 billion after earnings before interest and taxes.
Garrett Nelson, senior equity analyst at CFRA Research, downgraded Ford shares to a “sell” from a “hold” recommendation, saying, “We expect monthly auto sales to bottom in April, but do not anticipate a sharp rebound … with a potential liquidity crunch looming as its cash burn accelerates.”
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