Ford profit driven down by North America, warranty costs

Fri Apr 25, 2014 2:37pm EDT
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By Ben Klayman and Bernie Woodall

DETROIT (Reuters) - Ford Motor Co posted a lower-than-expected first-quarter profit on Friday as the No. 2 U.S. automaker reported $400 million in higher warranty costs in North America, sending shares down more than 3 percent.

Across the auto industry, safety recalls and warranty costs have received increasing attention as cars have become more complex and loaded with technology, Ford Chief Financial Officer Bob Shanks said.

"Everybody is generally reacting, and certainly we do, as soon as we find a problem," he told reporters at the company's suburban Detroit headquarters. "And you're seeing that across the business. It's not any particular company."

While Ford adjusts its warranty reserves every quarter, the total was larger in the first quarter because the company has dealt with more field service actions such as recalls and addressing customer complaints over the last two years, Shanks said.

Conspicuous safety defects also demand that automakers respond or risk large federal fines and hefty legal payouts, which General Motors Co now faces because of its recall of faulty ignition switches linked to at least 13 deaths. The GM recall serves as reminder to rivals, Stifel analyst James Albertine said.

"Any (automaker) that is not taking advantage of the opportunity GM has given them to clean the proverbial recall house is missing the boat," he said.

In addition to the higher warranty costs, Ford's incentives in North America also rose in the first quarter due to an aging lineup of vehicles, something Ford is addressing with the launch of 16 new models in the region this year. Newer vehicles typically sell with no incentives or reduced ones.

"The company has a lot of new products coming online this year," said Fitch Ratings analyst Stephen Brown, who expects earnings to improve in the second half because of the new model rollouts. "They haven't seen the benefits (of the new vehicles) on dealer lots yet."   Continued...

The company logo is seen on the bonnet of a Ford car during the media day ahead of the 84th Geneva Motor Show at the Palexpo Arena in Geneva March 5, 2014. REUTERS/Arnd Wiegmann