Dearborn’s Ford Motor Co. produced a strong third-quarter performance through its decision two years ago to reallocate capital to franchise strengths — pickup trucks, SUVs, commercial vehicles, and iconic passenger vehicles — and phase out sedans.
“We haven’t suddenly fixed the issues in our automotive business, but we have a clear turnaround plan to get that done,” says Jim Farley, president and CEO. “That work is underway, and we’re making progress.”
Ford generated $6.3 billion in adjusted free cash flow during the third quarter, helped by a $4 billion rebuild of supplier payables as vehicle production reached pre-pandemic levels. The company ended the period with cash of nearly $30 billion and total liquidity of more than $45 billion after fully repaying $15 billion in revolving credit drawn down in the first quarter to maintain financial flexibility in the early days of the pandemic.
Ford Credit saw its strongest performance in 15 years.
“We know that there’s huge value to be unlocked as we turn around our automotive operations,” Farley says. “There will be additional opportunity when we start growing again, which we will do with products and services customers can’t resist.”
Farley outlined the plan on Oct. 1, his first day as president and CEO. It includes improving Ford’s competitive edge by offering new products and services including profitable and affordable vehicles; raising quality, reducing costs, and improving underperforming businesses; and allocating capital, talent, and other resources to customer satisfaction and growth in established and new businesses such as electric and self-driving vehicles.
“Challenges from the coronavirus were real, and some risks still linger,” says John Lawler, CFO. “Throughout the pandemic, we’ve prioritized the safety of our people, the needs of our customers, and the strength of our balance sheet, and that helped us post a solid quarter.”
In North America, Ford’s automotive business gained one point of market share. In the U.S., F-Series trucks picked up 1.7 points of industry share to more than 35 percent. The regional mix of popular and profitable trucks and commercial vehicles reached 57 percent.
Ford’s Europe business continued to derive benefits from its restructuring program, with a cumulative $1 billion reduction in structural costs since 2018. SUVs accounted for more than 30 percent of Ford’s vehicle mix in Europe, nearly nine points higher than the previous year. The regional business would have been profitable in the third quarter excluding effects associated with a supplier-quality issue with the new Kuga plug-in hybrid electric vehicle, among them the expense for CO2 pooling to comply with European emissions regulations.
Wholesale product shipments in China were up 22 percent as the company’s mix of SUVs increased 13 points to 36 percent. The strength was driven by locally built versions of the Explorer, Escape, and Lincoln Aviator and Corsair and represented the third quarter in a row of year-over-year gains in market share. The third quarter was also the second straight of EBIT improvement.
In South America, Ford posted its fourth straight year-over-year improvement in quarterly EBIT with pricing increases and cost reductions helping to mitigate pressures from inflation and currency. The International Markets Group was profitable despite pandemic-related industry declines in vehicle shipments.
In the fourth quarter, Ford plans to launch the new F-150, including a hybrid electric-powered version; the Bronco Sport, ahead of the full-size Bronco next year; and the all-electric Mustang Mach-E.
Farley says electric vehicles are fundamental to the company’s future across its lineup, including commercial vehicles and the Lincoln line. Ford plans to reveal an all-electric Transit van for global markets in November.
“By the end of the year, customers will be able to choose from 12 hybrid and fully electric vehicles around the globe, and there is much more to come, including developing a complete EV ecosystem,” he says.
In the third quarter, Ford Mobility, which is building fourth-generation autonomous test vehicles with self-driving technology, produced its first AV-related revenue from a fleet operations pilot in Texas. It is also expanding its Spin scooter business in the U.S., U.K., and Germany.
Ford Credit’s quarterly earnings before taxes were its highest since 2005, up one-third to $1.1 billion. During the COVID-19 pandemic, Ford Credit has provided options for deferring vehicle payments and other programs, as well as incentives to come into showrooms or shop online.