Ford Motor unveiled the financial implications of its newly brokered labor agreement, pegging the cost at USD 8.8 billion. This move follows General Motors’ similar announcement and marks a response to the lost production resulting from an extensive strike at its U.S. plants. The deal with the United Auto Workers (UAW) union, achieved after weeks of negotiations, is set to increase labour costs by approximately USD 900 per vehicle by 2028. Ford aims to counterbalance this by implementing cost-cutting measures in other areas.
Profit forecast adjustment and market response
As a consequence of the strike-induced production losses, Ford adjusted its full-year profit forecast. The automaker now anticipates adjusted earnings before interest and taxes (EBIT) for 2023 to be in the range of USD 10 billion to USD 10.5 billion, down from the initial projection of USD 11 billion to USD 12 billion put forth in July. While some analysts view the revised forecast optimistically, with Citi analyst Itay Michaeli expressing encouragement, Ford’s shares experienced a 1.4% decline in early trading.
Strike impact on profits and wholesale vehicle sales
The revised forecast encompasses an estimated USD 1.7 billion in lost profits directly attributable to the strike. Additionally, Ford gauged that the strike led to approximately 100,000 units fewer in wholesale vehicle sales. This comes a day after General Motors disclosed that its recent labour deals with the UAW and Canadian union Unifor would cost the company USD 9.3 billion through 2028. GM also announced share buybacks amounting to USD 10 billion and a 33% dividend increase in efforts to bolster its share price.
Ford’s labour negotiations and market dynamics
Ford emerged as the first among Detroit’s Big Three automakers to reach a tentative deal with the UAW after an almost six-week strike. The prolonged strike saw thousands of workers participating in walkouts and picket lines across the United States, advocating for improved wages and benefits. The negotiations, amplified by UAW chief Shawn Fain’s live-streamed updates, culminated in an agreement featuring a pay hike, substantial manufacturing investments, and various benefits for workers.
Impact on financial outlook and future investments
The uncertainty surrounding the ratification of the deal prompted Ford to withdraw its 2023 forecast in October. Already grappling with losses in its electric vehicle (EV) business due to softened consumer demand, Ford announced a USD 12 billion reduction in future EV investment plans. The automaker also adjusted its 2023 adjusted free cash flow forecast to a range between USD 5 billion and USD 5.5 billion, down from the previous estimate of USD 6.5 billion to USD 7 billion.
As Ford addresses the financial ramifications of the recent labour agreement, the industry landscape continues to be shaped by ongoing labour negotiations, market dynamics, and the evolving demands of the automotive sector.