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Sep 19, 2022

Ford selloff deepens after warning of US$1B in extra costs

Jamie Murray discusses Ford Motor Company vs General Motors Company

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Ford Motor Co. fell the most in over a decade after saying inflation is pushing supplier costs US$1 billion higher than expected in the current quarter, joining the chorus of major corporations warning about challenges rippling through the economy.

The automaker expects adjusted earnings before interest and taxes in the range of US$1.4 billion to US$1.7 billion when it reports results next month. The preliminary estimate is well below the US$3.7 billion in adjusted EBIT Ford reported last quarter and the US$3 billion it earned a year ago. Shortages of key parts will also keep its inventory of half-completed vehicles elevated, according to a statement late Monday.

“Higher inflation-related supplier costs seem to have a higher chance of recurring in comparison to chip shortages, suggesting some impact to 2023,” Ryan Brinkman, an analyst with JPMorgan Chase & Co., said in a note.

Ford’s shares fell 12 per cent Tuesday in New York, the worst decline in the S&P 500 and Ford’s biggest one-day loss since 2011. Other automakers tumbled as well, including General Motors Co., which finished 5.6 per cent lower.

The manufacturer is the latest household name to cite economic pressures weighing on operations. From FedEx Corp. to General Electric Co. to McDonald’s Corp., companies are pointing to flagging demand, stubborn supply-chain snags and the growing possibility of a recession.

Ford’s warning comes as the Federal Reserve is expected this week to raise interest rates again in the fight against inflation, which has moderated little in recent months.

Ford now anticipates that the number of partially built vehicles -- which it described as “largely high-margin trucks and SUVs” -- will stand at around 40,000 to 45,000 as of the end of the third quarter, which ends Sept. 30. It expressed confidence that it could complete and sell those vehicles by the end of the year.

The carmaker said it still expects to earn US$11.5 billion to US$12.5 billion for the full year, unchanged from its previous forecast. Ford will “provide more dimension” about its financial expectations for 2022 along with its quarterly earnings report on Oct. 26.

Still, the inventory issue shows automakers continue to struggle with ongoing parts shortages. Ford’s latest comments echo those of rival GM, which said in July that was trying to cut down its inventory of partially completed vehicles, which had swelled amid short supplies of semiconductors.