Ford Shares Decline as Efficiency Lags Behind GM

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Ford Shares Decline as Efficiency Lags Behind GM

Ford Motor Co. (NYSE:F) shares experienced a significant decline this week. The 8% drop is attributed to inefficiencies in the company's traditional gasoline engine operations. CEO Jim Farley acknowledged issues such as quality and warranty concerns, supplier problems, and waste during the quarterly earnings call held on Monday. Despite some progress, Farley expressed dissatisfaction with the current situation.

The automaker has revised its annual result forecast down to the lower end of previous expectations. This adjustment was made due to quality issues, the impact of recent hurricanes in the southeastern U.S., inflation affecting a factory in Turkey, and other isolated events.

As a result, the gasoline vehicle operations are expected to generate approximately $5 billion in earnings before interest and taxes (EBIT) by year-end. This represents a decline from the initial projection of $6 billion to $6.5 billion. Ford's commercial segment is also expected to just meet the lower end of its $9 billion to $10 billion outlook.

In contrast, General Motors Co. (NYSE:GM) shares have increased by 43% this year, thanks to a series of upward revisions in its outlook. GM reported $49 billion in revenue and $4.1 billion in EBIT in the third quarter, approximately 1.5 times the revenue reported by Ford, which was $46 billion. Barclays analyst Dan Levy noted that Ford has yet to close the $7 billion cost gap with its competitors, a gap that has been acknowledged by Ford executives in the past.

Investors have also expressed concerns regarding Ford’s strategy of accumulating cash and paying dividends instead of aggressive stock buybacks, unlike GM. Last year, GM announced a $10 billion stock buyback and added another $6 billion to it in June. Meanwhile, Ford has maintained its quarterly dividend of 15 cents this year.

CFO John Lawler stated that the company aims to distribute 40% to 50% of its free cash flow as dividends, intending to retain the remainder due to current industry and economic uncertainties.

At the end of the third quarter, GM reduced its share count from 1.5 billion at the beginning of 2021 to 1.1 billion, while Ford's share count remained stable at 3.9 billion, reflecting the figure from the start of 2021.