Ford staring at $1.7bn profit hit due to UAW strike
What's the story
Ford has revealed a $1.7 billion drop in profits and a significant loss in vehicle production due to the US auto workers' strike.
As a result, the company has lowered its full-year earnings forecast for 2023.
It is now anticipating adjusted earnings before interest and taxes (EBIT) to be between $10 billion and $10.5 billion, a decrease from the previous estimate of $11 billion to $12 billion.
Details
Impact on fourth quarter profits
This revised outlook includes a $1.6 billion loss in profits for the fourth quarter, caused by disruptions in the production of high-margin SUVs and trucks.
Despite these setbacks, Ford's shares rose 1.9% in premarket trading.
This news comes shortly after General Motors also reduced its 2023 profit forecast, citing that new labor agreements with the UAW and the Canadian union Unifor will cost the company $9.3 billion through 2028.
What Next?
UAW strikes and negotiations
Ford was the first of Detroit's Big Three automakers to reach a deal with the United Auto Workers (UAW), after six weeks of strikes involving around 45,000 workers.
Union leader Shawn Fain livestreamed negotiations and announced unexpected walkouts, accusing companies of reaping record profits without fairly distributing them among workers.
A month into the strikes, Ford cautioned that they could reduce profits, hinder investment, and negatively impact workers.
Insights
New deal and future challenges
The deal approved by UAW includes a pay increase of at least 30% for full-time employees and over double pay for others, along with $8.1 billion in manufacturing investments.
However, higher labor costs led Ford to withdraw its 2023 forecast.
The company is also struggling with losses in its EV business, weakening consumer demand due to increased interest rates, and a price war initiated by Tesla.
Consequently, Ford plans to cut future EV investment plans by $12 billion.