As a longtime supporter and shareholder of Ford Motor Company (F -0.40%), I have heard my share of comments, both positive and negative, about the company. One old acronym that has been associated with the company in the past -- "Found On Roadside Dead" -- is hitting a little close to home these days.
In recent years, Ford has struggled to keep its costs down compared to crosstown rivals, and one big knock against the company's earnings per share has been its warranty costs, which reared its ugly head in recent quarters. But Ford is about to shake things up, and fixing its quality problems can't happen too soon for investors.
Ford has a rough track record of recalls
Ford unfortunately kicked off 2024 much the same way it operated throughout 2023, with a recall regarding its money-maker F-150 truck. The recall was for a potentially disastrous rear axle defect, when failure would result in an unexpected rollaway or power loss.
Currently, Ford has the second-most number of recalls in 2024 among automakers with 62, behind only rival Stellantis' 67. For comparison, General Motors (GM 0.18%) checks in at 33 recalls. While Ford may be second in the number of recalls, it could still have more overall vehicles recalled this year when all of the data is released.
It's not a new trend, either, as Ford has led the industry in recalls for three consecutive years. The icing on the cake was the National Highway Traffic Safety Administration (NHTSA) hitting Ford with a $165 million civil penalty for failing to comply with federal recall requirements -- the second-largest fine in the agency's 54-year history.
Something has to change, and last week the company confirmed one major shift in personnel.
Ford wants a new head of quality
Ford confirmed it would be appointing a new head of quality to execute its strategy of reversing recalls and reducing warranty costs. A new leader has yet to be announced, but it's a hire or promotion the company needs to get right. Jim Baumbick, the former head of quality, will move to oversee the entire vehicle programs team including the addition of EV programs.
The move is expected to take effect early in 2025, and it could take 18 months for newer models, hopefully with improved quality, to filter into the market and improve Ford's recall and quality issues. The high number of recalls has led to profit-deteriorating results, including during the second quarter when warranty expenses went up $800 million, compared to the prior year, mostly due to issues from vehicles launched in 2021 or earlier.
Ford CEO Jim Farley has made it well known that fixing the company's quality problems was a top priority but believes its operation has improved and results are about to show: "After three years of hard work fixing all of our deficits ... we now have everything in place to really see our quality turn for our customers and for our business," Farley told reporters at an event last week, according to Reuters.
Is Ford a Buy?
Ford's stock has shed roughly 20% of its value year to date, far behind its crosstown rival GM which has gained nearly 40%. It could be a buying opportunity for income investors who find Ford's 6.1% dividend yield attractive, but for many investors, it's best to watch Ford's struggles from the sideline.
There are just too many headwinds facing the iconic automaker. Not only is the company battling warranty costs and quality issues, it faces an uphill battle in China where domestic vehicle makers are surging on the backs of low-cost electric vehicles. Ford has begun restructuring its European business, including laying off 4,000 positions by 2027, and it's losing billions on its EV lineup. With all of Ford's issues that need fixing, the automaker just doesn't seem like an attractive buy right now.
