Executive Briefings

Why Ford Is Blaming Costlier Metals for a 'Bad Year' Ahead

Ford Motor Co. CEO Jim Hackett has already called 2018 a “bad year,” casting some of the blame on costlier raw materials used to build cars.

It’s an excuse that’s both valid and not the whole story for Ford, which reports quarterly earnings after the close on Jan. 24. Rising prices for steel, aluminum and other metals are exacerbating issues including the automaker’s outsized reliance on its popular F-Series pickup line that’s facing new competitive pressures.

Investors apparently agree with the CEO’s assessment. They’ve traded down Ford’s shares nearly 9 percent since executives warned last week that profit will drop this year. The second-largest U.S. automaker is projecting a $1.6bn headwind related to raw materials and exchange rates in 2018, following a $2bn drag on 2017 results.

“The changes in commodity prices and exchange rates that we’ve seen over the last several years have had a material effect on the business,” CFO Bob Shanks told analysts Jan. 16 at a Deutsche Bank conference in Detroit. “We see that continuing in 2018.”

The price of steel, Ford’s biggest commodity purchase, has spiked 18 percent since the start of last year. Aluminum, used for the bodies of F-Series trucks, is up by nearly a third.

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It’s an excuse that’s both valid and not the whole story for Ford, which reports quarterly earnings after the close on Jan. 24. Rising prices for steel, aluminum and other metals are exacerbating issues including the automaker’s outsized reliance on its popular F-Series pickup line that’s facing new competitive pressures.

Investors apparently agree with the CEO’s assessment. They’ve traded down Ford’s shares nearly 9 percent since executives warned last week that profit will drop this year. The second-largest U.S. automaker is projecting a $1.6bn headwind related to raw materials and exchange rates in 2018, following a $2bn drag on 2017 results.

“The changes in commodity prices and exchange rates that we’ve seen over the last several years have had a material effect on the business,” CFO Bob Shanks told analysts Jan. 16 at a Deutsche Bank conference in Detroit. “We see that continuing in 2018.”

The price of steel, Ford’s biggest commodity purchase, has spiked 18 percent since the start of last year. Aluminum, used for the bodies of F-Series trucks, is up by nearly a third.

Read full article