Ford Motor recently reinstated its 2023 guidance after withdrawing it the previous month due to labor strikes and negotiations with the United Auto Workers (UAW) union. The updated guidance includes adjusted earnings before interest and taxes (EBIT) of $10 billion to $10.5 billion and adjusted free cash flow of $5 billion to $5.5 billion. This is a significant revision from the previously announced guidance, which had adjusted EBIT of $11 billion to $12 billion and adjusted free cash flow of $6.5 billion to $7 billion.
The UAW labor agreement is predicted to cost Ford $8.8 billion over the contract’s lifespan, which expires in April 2028. This is slightly lower than the impact estimated for crosstown rival General Motors (GM), which faces a $9.3 billion cost over the agreement’s duration. Ford’s Chief Financial Officer, John Lawler, stated during the company’s third-quarter earnings report that they were on track to meet their guidance before the UAW strikes disrupted operations. The strikes resulted in lost production of approximately 80,000 vehicles, leading to a $1.3 billion decrease in earnings, with $100 million lost in the third quarter alone. Ford later updated this impact amount to $1.7 billion, including $1.6 billion in the fourth quarter.
The UAW agreement is expected to increase costs by about $900 per assembled vehicle by 2028. To counterbalance this, Lawler had previously stated that Ford would seek productivity improvements, cost reductions, and efficiencies throughout the company. As part of their effort to offset these additional costs and achieve previously announced profitability targets, Ford plans to cancel or postpone $12 billion in investments related to electric vehicles.
Ford’s Chief Financial Officer emphasized the company’s commitment to disciplined capital allocation and execution, growth, and profitability with less vulnerability to market cycles. The Ford+ turnaround plan is referenced as the guiding strategy for achieving these goals. Lawler is expected to discuss the reinstated guidance at a Barclays investor conference.
GM also recently announced its plans to increase its quarterly dividend by 33% and initiate a $10 billion share repurchase program. Similar to Ford, GM intends to reinstate its 2023 guidance, considering an estimated $1.1 billion impact from the UAW strikes. GM’s forecast includes a net income of $9.1 billion to $9.7 billion, adjusted EBIT of $11.7 billion to $12.7 billion, and adjusted earnings per share of approximately $7.20 to $7.70.
Both Ford and GM’s agreements with the UAW involve substantial hourly pay raises, the reintroduction of cost-of-living adjustments, and enhanced profit-sharing payments, among other benefits. However, Stellantis, the parent company of Chrysler, has not disclosed the anticipated costs of its labor pact with the UAW, making it the only one of the “Big Three” U.S. automakers not to do so.
Ford Motor’s reinstated 2023 guidance reflects the impacts of labor strikes and the subsequent UAW labor agreement. The company expects lower adjusted EBIT and adjusted free cash flow compared to the initial guidance. Ford aims to mitigate the increased costs by implementing productivity measures and canceling or postponing investments in electric vehicles. The Ford+ turnaround plan serves as a roadmap for achieving growth and profitability. As the automotive industry adjusts to the outcomes of the UAW negotiations, GM and Chrysler’s plans also reflect the financial implications of these agreements. It remains to be seen how Stellantis’ labor pact will affect the company’s financials, as the anticipated costs have not been publicly disclosed.
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