The Impact of Labor Strikes on Ford Motor’s Forecast

The Impact of Labor Strikes on Ford Motor’s Forecast

Ford Motor recently announced the reinstatement of its 2023 guidance, which had been withdrawn last month due to labor strikes and negotiations with the United Auto Workers (UAW) union. The company’s forecast now predicts adjusted earnings before interest and taxes (EBIT) between $10 billion and $10.5 billion, as well as adjusted free cash flow ranging from $5 billion to $5.5 billion. These figures reflect a decrease from the previously announced guidance of adjusted EBIT between $11 billion and $12 billion and adjusted free cash flow of $6.5 billion to $7 billion.

Ford anticipates that the UAW labor agreement will result in costs of approximately $8.8 billion throughout the duration of the contract, which expires in April 2028. This is lower than the estimated $9.3 billion impact projected by its rival, General Motors (GM). Chief Financial Officer John Lawler initially revealed on October 26, during the company’s third-quarter earnings report, that the UAW strike had already caused a loss of $1.3 billion in earnings due to the production loss of around 80,000 vehicles, including approximately $100 million in the third quarter. Subsequently, on Thursday, Ford revised the impact amount to $1.7 billion, including $1.6 billion in the fourth quarter.

Acknowledging the additional costs resulting from the UAW deal, Lawler emphasized Ford’s commitment to finding productivity enhancements, cost reductions, and efficiencies throughout the organization to offset these expenses and meet the previously set profitability targets. As part of its strategy, the company intends to cancel or postpone $12 billion in investments associated with electric vehicles.

Ford’s Chief Financial Officer mentioned the company’s Ford+ turnaround plan, which is supported by a skilled team dedicated to capital allocation and disciplined decision-making. The plan aims to drive consistent and robust growth, profitability, and reduce the cyclical nature of the business. According to Lawler, the implementation of this plan will help mitigate the financial impacts of the UAW strikes and ensure the company’s long-term success.

The announcement from Ford comes shortly after GM disclosed its plans to increase its quarterly dividend by 33% in the upcoming year, initiate a $10 billion share repurchase program, and reinstate its 2023 guidance. GM’s forecast incorporates an estimated $1.1 billion in earnings before interest and tax (EBIT) adjusted impact resulting from the UAW strikes. The projections include net income attributable to stockholders of $9.1 billion to $9.7 billion, adjusted EBIT of $11.7 billion to $12.7 billion, and adjusted earnings per share of approximately $7.20 to $7.70.

Both the UAW agreements with Ford and GM ensure significant hourly pay raises of at least 25%, reinstatement of cost-of-living adjustments, and enhanced profit-sharing payments, among other benefits. However, Stellantis, the parent company of Chrysler and the second-largest of the “Big Three” U.S. automakers, has chosen not to disclose the expected costs associated with its labor pact with the UAW.

The reinstatement of Ford’s 2023 guidance indicates the company’s determination to rebound from the setbacks caused by labor strikes and negotiate favorable terms with the UAW. While the impacts of the strikes have resulted in decreased earnings and cash flow, Ford remains committed to finding innovative solutions and cost-saving measures to achieve its profitability targets. As the automotive industry continues to navigate challenges, such as labor disputes, remaining agile and implementing efficient strategies are crucial for long-term success.

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