24/7 Wall St. Insights

• Warranty costs have been a drag on Ford Motor Co. (NYSE: F) earnings.
• Investors want to know what’s taking so long and when that problem will end.
• Also: Dividend legends to hold forever.

For the past several quarters, warranty costs have damaged Ford Motor Co.’s (NYSE: F) results. Among the most vexing questions investors face is when these costs will stop being a drag. Ford did announce a penalty for late reporting of a recent warranty issue.

According to the Insurance Journal, “Ford Motor Co. agreed to a $165 million civil penalty to settle allegations the company failed to recall cars with defective rearview cameras in a timely manner, the second-largest fine ever levied by the National Highway Traffic Safety Administration.” The number two U.S. car company will pay a $65 million fine. Additionally, it will pay $55 million, which will be deferred until NHTSA decides if Ford has fulfilled the obligations of its consent order. It must also spend $45 million to develop a safety analytics system.

When Ford announced its most recent earnings on October 30, its profits were down $100 million from the same quarter a year ago. The warranty charges were hundreds of millions of dollars, but the chief financial officer failed to provide the full details. Ford paid nearly $5 billion in warranty claims in 2023.

Ford CEO Jim Farley commented, “All of our improvements to warranty will take time to reduce our warranty expense—maybe up to 18 months—but we’re moving the needle on all the inputs.” This statement should not be comforting to shareholders.

Ford’s stock is down 10% this year. Meanwhile, shares of General Motors Co. (NYSE: GM) are 59% higher. Ouch.

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