Ford Motor Company today reinstated its 2023 financial guidance, forecasting lower adjusted profits compared to 2022 due to substantially higher costs from a recent United Auto Workers union strike.
UAW Strike Cuts Ford’s Profits by $1.7 Billion, Sales Volume by 100,000 Vehicles
The historic six-week UAW strike disrupted production and shipments, resulting in an estimated loss of 100,000 vehicle sales and $1.7 billion in profits for Ford during Q3 2022. This steep cost makes it one of the most expensive labor stoppages in recent years for an automaker.
"The work stoppage was extremely costly for us and has put significant pressure on our business," said Ford CFO John Lawler. "However, we have worked to quickly ramp up production to meet strong customer demand for our high-demand products."
Production levels are now recovering back to normal capacity following the ratification of a new 4-year labor contract on November 18 that will raise Ford’s annual costs by about $900 million.
| Metric | Impact from UAW Strike |
|---|---|
| Lost Profits | $1.7 billion |
| Lost Unit Sales | 100,000 vehicles |
New UAW Contract Adds $8.8 Billion in Costs, Trims 2023 Profit Outlook
Ford estimates that the cost of higher wages, bonuses and other employee compensation from its new deal with the UAW will total $8.8 billion over the 4-year life of the contract. This will significantly increase Ford’s operating costs starting next year.
As a result, the automaker trimmed its 2023 adjusted earnings guidance to a range of $10 billion to $10.5 billion, compared to 2022 expected adjusted earnings before interest and taxes (EBIT) of $12 billion.
Ford says it will offset some of the added labor expenses through efficiency gains and favorable pricing, but 2023 profits are still forecast to decrease by 14% at the midpoint versus 2022. Customer demand and product mix are expected to remain strong next year.
"We expect 2023 to be another solid year financially, despite economic uncertainties," said Lawler. "While additional labor costs present headwinds, we have the right strategy and talented team to navigate challenges and drive sustained growth."
Ford Share Price Rallies on New Forecast Topping Expectations
Despite lowering its 2023 profit outlook, Ford shares jumped over 6% to above $14 per share because its adjusted EBIT guidance came in significantly above analyst consensus forecasts for around $9 billion next year.
Many investors had feared an even steeper decline in profits. Ford’s new free cash flow estimate of $9 billion to $10 billion also topped expectations. This signals that the company has levers to largely offset rising costs in the near term.
"Ford’s updated guidance shows strong resilience that is being rewarded by the market," said equity analyst Joseph Spak of RBC Capital Markets. "While this year’s UAW strike adds pain, it’s a one-time impact and Ford has ample room to maneuver and protect margins ahead."
Other analysts also expressed optimism that Ford can weather near-term headwinds from the strike and high inflation to drive margin expansion over the long run as production normalizes.
Ford Aims to Ramp Up Production to Meet Strong Customer Demand
With its labor contract secured for the next four years, Ford is focused on boosting manufacturing velocity to fulfill robust consumer appetite for popular trucks and SUVs like the F-150 Lightning electric pickup and Bronco off-roader.
"Demand remains strong, especially for our iconic and high-margin trucks and SUVs," noted Kumar Galhotra, president of Ford Blue. "Getting our full production capacity back online is now the priority across our North American facilities."
Most Ford plants have returned to pre-strike production rates. The company is also working to replenish dealer inventories that were depleted by nearly 40% during the work stoppage. Tight inventory levels on lots have curtailed recent sales.
As the supply bottleneck eases in coming months, Ford expects to recapture deferred Q3 sales and drive volume growth heading into 2024. This momentum along with its product lineup positions Ford well to gain U.S. retail market share for the third straight year.
Economic Risks Remain as Interest Rates Stay Elevated
Though Ford beat consensus expectations with its new 2023 forecast, significant external risks cloud the outlook. Surging inflation and higher interest rates present obstacles for automakers and consumers alike.
"Despite supportive fundamentals, Ford faces headwinds from macroeconomic uncertainty, higher borrowing costs affecting affordability and lingering supply chain issues," said equity research analyst John Murphy of Bank of America.
The Federal Reserve’s aggressive monetary tightening campaign has already started to cool demand and may tip certain sectors of the economy into recession. However, resilient employment conditions and demographics could help sustain auto sales.
"Our base-case scenario sees no meaningful recession, supporting elevated sales levels," said Ford economist Emily Kolinski Morris. "While the environment is challenging, tailwinds from an aging fleet and shift towards electric give us confidence in the state of the consumer."
UAW Deal Secures Labor Peace, Allows Ford to Focus on Execution
With its new 4-year UAW contract locked down and production rebounding out of the fall strike, Ford can now concentrate fully on ramping up operations to fulfill robust demand.
The deal provides critical labor peace and wage certainty into 2027, avoiding any threat of another costly work stoppage. This will enable smoother manufacturing, inventory rebuilding and new product launches over the next 12-18 months.
Strong early interest for the Lightning EV truck and other new models gives Ford confidence it can gain U.S. retail share again in 2023 while navigating economic uncertainty.
"Our future is so bright," said CEO Jim Farley. "We’re positioned to compete and win with iconic brands and leadership positions in the key electric and connected growth spaces."
While this autumn’s UAW action severely disrupted Ford’s momentum, the company believes it has the right strategy, people and products to reaccelerate profitable growth through 2023 and over the long term.
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