New York (CNN Business)Ford overcame the effects of the chip shortage to post a narrow profit in the second quarter, and said it expects much better times in the second half of this year.
Ford (FPRC) earned net income of $561 million in the quarter, about half of what it earned a year earlier despite the impact of he pandemic, which shut down many of its factories and dealerships during that period. Analysts had forecast that the company would report a narrow second quarter loss as it struggled with the impact of the computer chip shortage, which is causing problems throughout the auto industry. Despite strong demand for cars and trucks from consumers, Ford and most other automakers were forced to shut factories once again this quarter due to the lack of chip needed to build their vehicles.
In April Ford warned that it expected to lose about 50% of its planned second-quarter production from the chip shortage, which would cost it about $2.5 billion over the course of the year. But on Wednesday the company said the lost production was not as bad as feared, and it now expects full-year adjusted earnings before interest and taxes to come to between $9 billion to $10 billion, well above the $5.5 billion to $6.5 billion range it was projecting just three months ago.
Ford’s quarterly profit was a surprise even for the company’s top management. Read More”I can tell you this outcome was far from certain at the beginning of the quarter,” said Ford CEO Jim Farley. While he said the “situation remains fluid” for the supply of chips going forward, he expects to see improvement going forward. He added that the company is seeing strong demand for a series of new vehicles, including the recently re-introduced Ford Bronco, the Mustang Mach-E electric SUV and the F-150 Lightning, the electric version of its best selling pickup. There are 120,000 reservations for the F-150 Lightning, which won’t be available until next spring, and 120,000 unfilled orders for the Broncos which only recently went into production, Ford said. More than 70% of orders for both vehicles are from customers new to Ford.”After effectively managing through the first half, we are now spring-loaded for growth in the second half and beyond because of those red-hot products, pent-up demand and improving chip supply,” said Farley.And while it usually takes time for automakers to make profits on electric vehicles early in their production run, CFO John Lawler said that the Mustang Mach-E is already profitable in its first year of availability.
A new way of selling cars
Farley said navigating through the chip shortage has led Ford to make fundamental changes in the way it conducts business. It now expects to sell far more vehicles to customers who order a specific vehicle and have Ford build it for them, rather than shipping the vehicles to dealers to sell to walk-in customers.The “order bank” for vehicle pre-orders by customers is seven times greater than it was at this time a year earlier, he said, and doesn’t include reservations for the F-150 Lightning or most Bronco orders.”We have learned that, yes, operating with fewer vehicles on lots is not only possible but it’s better for customers, dealers and Ford,” Farley said. He said more customer orders lower inventories for Ford and its dealers and better reflects actual demand, and less need to use cash-back and financing offers to move vehicles already in inventory.
The Great American Car Shortage won't be over for months”I know we’re wasting money on incentives,” Farley said. “I just don’t know where. With an order-based system, we will have much less risk of that.” And the upside for buyers is that “they more quickly get the precise vehicle they want.”
The shortage of both new and used car inventory caused by the chip shortage and strong demand from car buyers has driven both new and used car prices to record highs. But automakers sell vehicles to their dealers, who are independently owned businesses, at set wholesale prices. As a result, the dealerships have profited from high auto prices more than the automakers.Shares of Ford rose 4% in after-hours trading following the report.
Source: edition.cnn.com