Ford details UAW strike impact, further slows down EV plans

Ford Motor Co. on Thursday detailed the financial impacts of the 41-day United Auto Workers strike that was called off just hours before, and revealed a further slowdown in its electric-vehicle rollout due to market dynamics.

The Dearborn automaker reported taking a $1.3 billion hit to its earnings as a result of the strike and withdrew its earnings guidance for the rest of the year, pending ratification of the tentative agreement on a new labor contract it reached with the union Wednesday night.

Meanwhile, executives said they are pushing back some $12 billion in planned spending on the company's EV strategy and delaying the launch of one of two joint-venture battery plants it's building in Kentucky with South Korean battery manufacturer SK On.

Overall, the company delivered what executives characterized as "mixed" results for the July-September period, with results dragged down by the strike and nagging cost and quality issues.

Ford reported $1.2 billion in profit on revenue of $43.8 billion for the quarter. The profits compare to a loss of $827 million in the same period last year. Revenue was 11% higher than a year ago. Adjusted earnings stood at $2.2 billion for the quarter, up from $1.8 billion a year ago.

Ford Blue, the company's internal combustion engine and hybrid vehicle business, posted earnings of $1.7 billion. Ford Pro, the commercial vehicle business, reported nearly $1.7 billion in earnings. And Ford Model e, the business unit dedicated to electric vehicles and software, posted an earnings loss of $1.3 billion, which the company attributed to "continued investment in next-generation EVs and challenging market dynamics."

Ford posted $9.4 billion in adjusted earnings before interest and taxes through the third quarter. The company had previously said it expected to have adjusted earnings of between $11 billion and $12 billion for the full year.

The company now says that while it "had been poised to delivery profitability within that range," it is withdrawing its guidance due to the effects of the UAW strike and while ratification of the deal is pending.

Strike impact

John Lawler, Ford's chief financial officer, reported that the strike negatively affected the company's adjusted earnings by $100 million in the third quarter. In total, through last week, it cost the company about 80,000 units of production and $1.3 billion in earnings. The company expects to provide an update on expectations for 2023 results after an agreement is ratified and production is back up and running.

Lawler also said that while the strike is over, disruptions will continue to be felt as Ford and its network of suppliers begin the complex process of restarting operations at the three assembly plants that were on strike. The strikes at Ford's Chicago, Kentucky and Michigan assembly plants affected production at numerous other Ford facilities, as well.

“The restart of this will be complex," Lawler said. "We’ve got to bring back up operations that have been shut down, and we need to do it promptly but safely and without, most importantly, sacrificing quality.”

He declined to comment on the total cost of the tentative agreement to Ford and other specifics ahead of ratification by members, but said that it is expected to add about $850 to $900 per unit to the company's labor costs. The company also expects an impact of about 60 to 70 basis points of margin. The impact means that Ford must find ways to boost productivity and deliver efficiencies throughout the company, Lawler said, but "there's no doubt" that the company will remain profitable.

“This is something we’re gonna have to work on," he said. "But … we’re seeing inflation. And when you’re in a period of inflation, you have to pay your people, because it puts a hardship on them. And then you as a company have to go out and find a way to operate more efficiently, increase your productivity and eliminate waste. And that’s what we need to do going forward.”

The tentative agreement includes 25% in base wage increases through April 2028 and will raise the top wage, now $32.32 an hour, by over 30% to more than $40 an hour, and raise the starting wage by 68%, to over $28 an hour over the life of the contract, according to the union. Workers will receive an immediate 11% wage increase upon ratification.

Also included are cost-of-living adjustments and a reduction in the time for new workers to reach the top wage scale from eight years to three years. The deal also includes improvements for current retirees, workers with pensions, and those who have 401(k) plans. It also includes a right to strike over plant closures.

The agreement brings the UAW's unprecedented simultaneous strike of all three Detroit automakers closer to a resolution, as negotiations continue with rivals General Motors Co. and Stellantis NV and a ratification vote on the Ford deal is expected in the coming weeks. The targeted strike sent more than 45,000 autoworkers from eight assembly plants and 38 parts distribution centers to picket lines. About 20,000 Ford workers are now being sent back to work.

EV slowdown

Meanwhile, Thursday's report included further signals and confirmation that the EV transition is encountering some bumps in the road. Lawler emphasized that while consumer adoption of EVs continues to grow, it's at a slower pace than what Ford and others in the industry initially expected, prompting some pullback in plans.

Ford already had taken steps such as pushing back some of its EV production targets and pausing a planned $3.5 billion investment to build an EV battery plant in Marshall, which the company said Thursday it is still "reevaluating." Lawler also revealed Thursday that Ford plans to push back about $12 billion in planned EV investments after determining it wouldn't need additional capacity in the near term. The company also has reduced some production of its electric Mustang Mach-E.

“Given the dynamic EV environment, we are being judicious about our production and adjusting future capacity to better match market demand," Lawler said.

Still, executives reiterated the company's plans to launch a second generation of EVs and that development work continues on a third generation.

CFRA Research, an investment research firm, on Thursday reiterated its "hold" opinion on Ford's stock and reduced its 12-month price target to $12 from $13 per share.

"While we think the new labor deal will be ratified, we view the concessions the company made as significant and they will weigh on margins and affect its competitiveness relative to Tesla and other non-union automakers," Garrett Nelson, senior equity analyst at CFRA Research, wrote in a note. "Comps should also turn much less favorable in 2024 and we see a higher-for-longer interest rate scenario hurting sales volumes."

jgrzelewski@detroitnews.com