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Ford Profit Falls Ahead of Pivot to Appease Trump

Jan. 26, 2017
Ford’s financial well-being will be linked the next four years to the whims of a White House taking special interest in both where cars are built to how fuel efficient they’ll have to be. 

Ford Motor Co.’s (IW 500/4) profit dropped, matching analysts’ estimates, in the last quarter before the carmaker began to transform from campaign-trail target to a darling of President Donald Trump.

Earnings excluding some items were 30 cents a share, the company said on January 26, mirroring the average projection of 20 analysts surveyed by Bloomberg. Profit on that basis fell 18% to $2.13 billion.

Ford’s financial well-being will be linked the next four years to the whims of a White House taking special interest in both where cars are built to how fuel efficient they’ll have to be. CEO Mark Fields met twice this week with Trump, who’s also spoken regularly with Executive Chairman Bill Ford. The president has praised the company for abandoning a $1.6 billion Focus small-car factory in Mexico and adding 700 U.S. jobs instead.

“The announcement to cancel the new Focus plant in Mexico really scored some points with Trump,” said David Whiston, a Chicago-based auto analyst with Morningstar Inc. Ford is “through the worst of it” after several “big Twitter attacks” throughout the campaign.

Mexico Plant

As a candidate and president-elect, Trump took issue with the Mexico manufacturing site Ford chose to leave behind as of early this month. The company will still move production of Focus compacts south of the border to an existing factory, though it’s also plowing $700 million into a plant south of Detroit.

The investment Ford announced in Flat Rock, Mich., will prime the plant to build an all-electric sport utility vehicle and hybrid Mustang pony car by 2020, plus an autonomous vehicle for ride sharing or hailing services the following year.

The Flat Rock outlays illustrate the costly bet on electrification and self-driving vehicles that Ford has said will drag on profits this year, a one-year blip that should give way to higher net income in 2018. The company reiterated its guidance for 2017 results to come in “generally lower” than last year, driven by heavy investment.

To take on upstarts such as Uber Technologies Inc. and Waymo, Alphabet Inc.’s self-driving car spinoff, Fields has promised to put 100,000 robot taxis on the road by 2021. Ford will spend $4.5 billion to convert about 40% of its lineup to hybrid and electric models by 2020.

Trump’s Promises

The CEO has said he’s hopeful Trump follows through on promises to cut corporate taxes and ease regulations by delaying or repealing federal rules mandating significantly higher fuel economy. Even if Trump makes good on a threat to institute a “border tax” on vehicles imported from Mexico, Fields believes Ford could benefit because it makes so many vehicles in the U.S., including F-Series pickups, its most profitable model line.

“Given that we’re the largest producer of vehicles here in the U.S. and a top exporter, that’s kind of interesting to us,” Fields said of border tax proposals being floated in Washington during a Jan. 10 analysts’ conference.

Strong sales of sport utility vehicles and trucks last year propelled Ford to a $10.4 billion annual pretax profit, down from $10.8 billion in 2015 but still its second-best annual total.

The shares fell 14% last year amid investor concern that the U.S. auto market was peaking after years of stronger growth. Ford gained 5.4% this year through January 25 as Trump showers the U.S. auto industry with attention.

“It’s important to realize that Ford and GM aren’t exactly out of the woods yet,” Brian Johnson, an analyst for Barclays, wrote in a January 25 note. “We are deep in the cycle -- incentives are elevated, residuals are declining and rates are rising.”

Automotive sales in the fourth quarter declined to $36 billion, topping analysts’ average estimate for $35.1 billion. North American pretax profit in the fourth quarter dropped $73 million to $1.96 billion In Europe, Ford earned $166 million before tax, about $35 million better than the year-earlier quarter Asia-Pacific quarterly pretax profit decreased to $284 million, down $160 million Ford said it will pay out average profit-sharing checks of $9,000 to each of its 56,000 United Auto Workers-represented employees in the U.S.

After major introductions over the past two years of its F-150 and Super Duty trucks, Ford will have a relatively quiet year for new models, Whiston said. The most significant new products coming this year are aluminum-bodied versions of its big SUVs, the Expedition and Lincoln Navigator.

Rather than what’s headed for showrooms, the biggest influence looming over Ford’s future could be the man in the oval office.

“Nobody knows -- that’s part of the problem,” Whiston said. “For now, the market is not worried. But the market will get very worried about auto stocks if Trump ends up doing a 35% tariff on Mexican imports.”

By Keith Naughton

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