After a tumultuous period marred by labor strikes and negotiations with the United Auto Workers (UAW) union, Ford Motor has reinstated its 2023 guidance. This new guidance sets expectations for adjusted earnings before interest and taxes (EBIT) between $10 billion and $10.5 billion and adjusted free cash flow ranging from $5 billion to $5.5 billion. These figures mark a downward revision 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 estimates that the new UAW labor agreement will cost the company a total of $8.8 billion over its lifespan, which expires in April 2028. This cost is slightly lower than the $9.3 billion impact reported by Ford’s crosstown rival, General Motors. Chief Financial Officer John Lawler stated during the company’s third-quarter earnings report that the UAW strike had already resulted in $1.3 billion in lost earnings and production impacts, including the loss of approximately 80,000 vehicles. Since then, Ford has updated the total impact amount to $1.7 billion, with $1.6 billion occurring in the fourth quarter.
To mitigate the added expenses from the UAW deal, Ford plans to find productivity, efficiencies, and cost reductions throughout the company. It aims to deliver on its previously announced profitability targets despite the anticipated $900 increase in costs per assembled vehicle by 2028. As part of its Ford+ turnaround plan, the company intends to cancel or postpone $12 billion in investments related to electric vehicles. Ford’s Chief Financial Officer, John Lawler, highlighted the company’s disciplined capital allocation and commitment to consistent execution, strong growth, and profitability.
Ford’s announcement follows General Motors’ decision to increase its quarterly dividend by 33% and initiate a $10 billion share repurchase program. General Motors estimates an impact of $1.1 billion in earnings before interest and tax (EBIT-adjusted) from the UAW strikes in its reinstated 2023 guidance. The UAW agreements for both companies include significant benefits for employees, such as hourly pay raises, the reinstatement of cost-of-living adjustments, and enhanced profit-sharing payments.
While Ford and General Motors have disclosed the expected costs of their labor pacts with the UAW, Chrysler parent company Stellantis, the second of the so-called “Big Three” U.S. automakers, has not shared details of its agreement. The automotive industry continues to face challenges, including rising raw material costs, supply chain disruptions, and the ongoing semiconductor shortage.
Ford Motor’s reinstatement of its 2023 guidance reflects the company’s confidence in recovering from the challenges posed by the UAW strikes. With a revised outlook for adjusted earnings and cash flow, Ford aims to navigate the additional costs brought on by the labor agreement while maintaining its commitment to profitability and growth. As the automotive industry evolves, Ford, along with other major players, must remain resilient and adaptive to overcome future obstacles.
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