Business Ford sets out escalating impact of chip shortage

Ford sets out escalating impact of chip shortage

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Ford would make 1.1m fewer vehicles this year because of the worldwide shortage of semiconductors, the carmaker said on Wednesday, significantly more disruption that previously hoped.

The company had earlier forecast it would make between 200,000 and 400,000 fewer vehicles. Under its new guidance, Ford’s production will be down 50 per cent in the second quarter and 10 per cent in the second half of the year.

The revised outlook took the shine off figures for the first three months of 2021, which showed Ford’s highest quarterly profits in a decade.

The semiconductor shortage has hamstrung car manufacturers across the globe, as chipmakers reserved chips for consumer electronics customers, who pay more. Matters were compounded by severe weather in Texas and a fire at a Japanese plant owned by Renesas.

“We now expect the semiconductors shortage to get worse,” said John Lawler, Ford’s chief financial officer. “We do see the trough being in Q2.”

The carmaker said it would take a $2.5bn hit to the year’s earnings before interest and taxes as a result of the disruption — the upper limit of the range it gave in February.

Its shares dropped 3 per cent in after-hours trading.

Ford credited popular products and worldwide operating improvements for helping achieve $3.3bn in net income in the three months to the end of March, its highest quarterly profit since 2011. It posted a $2bn loss for the first quarter of 2020.

Revenue was $36bn, up 6 per cent from the same period last year. Its adjusted earnings before interest and taxes were a record $4.8bn.

Ford had commanded better prices than the overall industry as inventory on dealers’ lots had stayed low, and consumers had proved eager to buy, Lawler said.

But the company is also reaping the fruits of the restructuring plan it began several years ago, where Ford decided to focus on more profitable trucks and sport utility vehicles and shuttered some unprofitable operations outside North America, most recently in Brazil.

“Our team is relentlessly executing our plan to turn around our automotive business,” said Jim Farley, chief executive. “There’s no question we’re becoming a stronger, more resilient company.”

Lawler said: “Although we’ve seen some good news come through from the dynamics of the marketplace, you’re also seeing the strength of the underlying business improve.”

So far Ford has built 22,000 vehicles that are waiting for chips to be installed. It was implementing special inspections and testing “so we can guarantee those vehicles will have the same quality as if they’d just moved off the production line”, Lawler added.

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