Ford’s 2nd Quarter Earnings

[Trader 10]

https://www.cnbc.com/2024/07/24/ford-motor-f-earnings-q2-2024.html

[akirby]

Warranty costs estimated to be $800M higher than last qtr.

[morgan20]

Get the earnings slides here

[CurtisH]

10 hours ago, akirby said:

Warranty costs estimated to be $800M higher than last qtr.

Well, that’s not good. 

[akirby]

28 minutes ago, CurtisH said:

Well, that’s not good. 

It’s terrible especially if you extrapolate it to a full year.  Thats probably $2B that they could be spending on new vehicles or plants or other Improvements.

 

The only good news is this was for 2021 vehicles so hopefully it will improve steadily as a result of the changes made in the last year.  
 

Warranty costs and not having enough production capacity are Ford’s 2 biggest issues.

[Biker16]

I'd like to see Ford hire a 3rd party company to evaluate their product development and manufacturing processes to find solutions to this stubborn problem. 

 

I don't think this can be fixed internally.

[akirby]

13 minutes ago, Biker16 said:

I'd like to see Ford hire a 3rd party company to evaluate their product development and manufacturing processes to find solutions to this stubborn problem. 

 

I don't think this can be fixed internally.

Thats possible but Ford has been building vehicles for over 100 years.  I think it’s a case of losing engineering talent and experience, putting schedule and cost ahead of quality and squeezing suppliers too hard.  The last two they can easily fix by changing priorities and realigning compensation and changing how they deal with suppliers.  The first one will just take time.

[fuzzymoomoo]

35 minutes ago, akirby said:

I think it’s a case of losing engineering talent and experience, putting schedule and cost ahead of quality and squeezing suppliers too hard.

Exactly this. 

[DeluxeStang]

1 hour ago, akirby said:

Thats possible but Ford has been building vehicles for over 100 years.  I think it’s a case of losing engineering talent and experience, putting schedule and cost ahead of quality and squeezing suppliers too hard.  The last two they can easily fix by changing priorities and realigning compensation and changing how they deal with suppliers.  The first one will just take time.

Didn't Hackett boast about getting rid of a lot of engineers, and about cutting engineering costs? I remember being concerned about how that would impact product quality. 

[akirby]

23 minutes ago, DeluxeStang said:

Didn't Hackett boast about getting rid of a lot of engineers, and about cutting engineering costs? I remember being concerned about how that would impact product quality. 

I think a lot left under Mulally during the cost cutting and platform consolidations.

[7Mary3]

I was told in the head-long rush to the EV future, many ICE engineers were basically fired, because it would supposedly be too difficult for them to make the transition to EV's.  Better to hire fresh talent off the street.  Wonder if there was any truth to that. 

Edited July 25, 2024 by 7Mary3

[akirby]

22 minutes ago, 7Mary3 said:

I was told in the head-long rush to the EV future, many ICE engineers were basically fired, because it would supposedly be too difficult for them to make the transition to EV's.  Better to hire fresh talant off the street.  Wonder if there was any truth to that. 

That happens any time technology changes.  Experienced employees are more resistant to change, especially when they risk no longer being the subject matter expert.  Some would relish the challenge and do quite well.  Others would rather keep doing what they know somewhere else or just retire.  They don’t want to go back and relearn something new whereas the younger engineers don’t have that baggage and they’re eager to learn.

[Sherminator98]

1 hour ago, 7Mary3 said:

I was told in the head-long rush to the EV future, many ICE engineers were basically fired, because it would supposedly be too difficult for them to make the transition to EV's.  Better to hire fresh talant off the street.  Wonder if there was any truth to that. 

 

But also keep in mind that anything the auto industry does is at least 2-3 years behind when it was first started. They don't toss out engines with no testing and it takes time to spool up production. It goes back to specs being changed to make them cheaper.

 

[Biker16]

8 hours ago, akirby said:

Thats possible but Ford has been building vehicles for over 100 years.  I think it’s a case of losing engineering talent and experience, putting schedule and cost ahead of quality and squeezing suppliers too hard.  The last two they can easily fix by changing priorities and realigning compensation and changing how they deal with suppliers.  The first one will just take time.

 

That may be the problem, or ot may not. 

 

The lack of consistency on quality and other issues other automakers have seemed to solve, point to systemic and organizational issues.

 

I don't believe stockholders should trust the organizational structure that created this dysfunction to solve it.

[akirby]

1 hour ago, Biker16 said:

 

That may be the problem, or ot may not. 

 

The lack of consistency on quality and other issues other automakers have seemed to solve, point to systemic and organizational issues.

 

I don't believe stockholders should trust the organizational structure that created this dysfunction to solve it.

Changes have already been implemented and appear to be trending positively.  Most notably holding new vehicle launches.  Farley made quality a top priority for management and tied it to their pay which is absolutely imperative.  I would also bet Farley has brought in outside help.

[DeluxeStang]

39 minutes ago, akirby said:

Changes have already been implemented and appear to be trending positively.  Most notably holding new vehicle launches.  Farley made quality a top priority for management and tied it to their pay which is absolutely imperative.  I would also bet Farley has brought in outside help.

Imagine if Ford brought in quality engineers from brands like Toyota. That would be epic. It just feels like a lot of the quality assurance people working for Ford at the ground floor couldn't care less. They know even if they keep messing up, they'll still have their job. 

[Sherminator98]

24 minutes ago, DeluxeStang said:

Imagine if Ford brought in quality engineers from brands like Toyota.  

 

Oh so they can do this?

Toyota Will Replace Over 100,000 V6 Engines in Recalled Tundras, Lexus SUVs

[morgan20]

19 minutes ago, DeluxeStang said:

It just feels like a lot of the quality assurance people working for Ford at the ground floor couldn't care less.

 

Yea, that was the case when I worked for Ford in the '90s and 2000s. The big shots in QC talked the talk about gemba kaizen, but only superficially walked the walk.

[akirby]

22 minutes ago, DeluxeStang said:

Imagine if Ford brought in quality engineers from brands like Toyota. That would be epic. It just feels like a lot of the quality assurance people working for Ford at the ground floor couldn't care less. They know even if they keep messing up, they'll still have their job. 

Don’t forget Farley came from Toyota.   When you reward managers for meeting dates and cutting costs and ignore quality you shouldn’t be surprised when you get poor quality.  Managers always make decisions that benefit them. 

 

Remember the Focus DCT?  Engineer says it won’t hold up to the torque of the 2.0L engine.  Middle managers had to decide to keep their mouth shut and make their cost and date targets knowing there would probably be problems down the line or throw the red flag and fix the problem which would have taken months if not a year and driven up costs significantly.   They chose the first option, collected their bonuses and raises and were off to some other project by the time the shit hit the fan.  No consequences.  Had they chosen the latter option at the time they probably would have been dinged quite heavily for missing dates and cost targets.

 

Contrast that to a new policy that says hiding a known problem or potential problem is a firable offense and that your bonus is tied to quality KPIs not dates.  Under that policy you don’t ignore or hide problems.  Thats the change Farley made and that’s why this has a chance of working.

[DeluxeStang]

1 hour ago, silvrsvt said:

 

Oh so they can do this?

Toyota Will Replace Over 100,000 V6 Engines in Recalled Tundras, Lexus SUVs

I should clarify, get those old school Toyota engineers 😆. 

[tbone]

Throwing this out there for discussion.   Farley wasn’t painted in positive light in this article.  
 

https://247wallst.com/investing/2024/07/25/ford-falls-apart-under-ceo-farley/

[fuzzymoomoo]

3 hours ago, tbone said:

Throwing this out there for discussion.   Farley wasn’t painted in positive light in this article.  
 

https://247wallst.com/investing/2024/07/25/ford-falls-apart-under-ceo-farley/

Hard to disagree with any of it

[akirby]

3 hours ago, fuzzymoomoo said:

Hard to disagree with any of it

Can’t disagree that he waited too long to make real changes for quality improvement.  I suspect he tried to make incremental changes while still pushing aggressive product schedules and cost cutting before realizing that wasn’t enough.    Now it seems on the surface that there is a commitment to quality over sales as evidenced by the extended launch holds.  And changing the compensation KPIs is a huge step but we’ll have to see if they keep up that commitment or backslide.

 

I also agree he mismanaged SOME of the EV stuff like the Oakville debacle and Rivian and VW partnerships along with ever changing product plans.  But I think T3 and BOC is absolutely the right move and he did create the skunkworks team which might turn out to be a genius move.  We’ll have to wait and see.  But to say it’s a failure because of the model E startup costs is short sighted.

[rmc523]

A couple of thoughts, and it's not meant to be an apologist, but

 

1) Ford is hardly the only company to have invested billions in EVs with little to show for it.....I think where Ford gets dinged is that it decided to purposely break out EVs in their results, whereas competitors just have it in their overall numbers.........which looks better for you?

• Ford made $2.59 billion overall
• OR
• Ford Blue made $1.17B, Ford Pro made $2.56B, but EV lost $1.14B.

2) Changes should've been made earlier for quality purposes, but at least changes have been made that seem to be paying off so far.

 

I'll agree that Oakville is a bad mis-step, and how can you blame him for the VW move when that was done by furniture man (can't even remember his name)?

[Biker16]

12 hours ago, akirby said:

Changes have already been implemented and appear to be trending positively.  Most notably holding new vehicle launches.  Farley made quality a top priority for management and tied it to their pay which is absolutely imperative.  I would also bet Farley has brought in outside help.

 

I have been around a long time. 

 

I owned a 2000 Focus and currently own a 2012 Focus and 2014 Transit Connect I love(d) these vehicles. There is a pattern with Ford, where recalls and quality issues spike and Management promises changes, only to see another spike in a few years with more commitments to changes. 

 

I don't remember a time when Ford was #1 in initial quality. Quality improves after the spikes but never to be the best in world. 

 

Systemic issues with Ford seem to stem from the need for short term cost reductions, short term thinking, and volatile product cadences.

 

I hope this is fixed with Farley, but I will believe it when I see it.