Ford made the most of its business in the midst of coronavirus, progress toward major new-vehicle launches in the near term, and strategic investments in the company’s ambitious future during second-quarter 2020.
“I could not be prouder of the Ford team’s optimism and effectiveness as we manage through this pandemic,” said President and CEO Jim Hackett. “We delivered a strong Q2 while keeping each other safe, caring for customers and neighbours, and assuring tomorrow.”
Ford’s balance-sheet discipline provided strong liquidity and financial flexibility heading into the economic crisis and through the second quarter. The company ended Q2 with more than $39 billion in cash, reflecting, in part, $10 billion in new debt during the quarter.
On July 27, Ford repaid $7.7 billion of an outstanding $15.4 billion on its revolving credit facilities, and also extended $4.8 billion of its three-year revolving credit lines. The company’s almost $40 billion in liquidity today is expected to be sufficient to maintain or exceed a target cash balance of $20 billion through the second half of this year, even if global demand declines or there is another major wave of pandemic-related plant closures.
“Our global team is delivering great value for customers, performing strongly and advancing the business against extraordinary headwinds,” said Ford CFO Tim Stone. “You’re seeing us fix things that held us back in the past, accelerate in areas like commercial vehicles and SUVs, and set ourselves up for growth in connectivity, electrification and autonomous vehicles.”
In June, Ford and Volkswagen finalized agreements that expanded their global alliance, leveraging complementary strengths across an expected combined 8 million commercial and electric vehicles, and midsize pickup trucks. The alliance emphasizes innovation and choice for their respective customers of commercial vehicles and high-performing EVs:
- A medium pickup truck engineered and built by Ford
- A city delivery van developed and made by Volkswagen Commercial Vehicles and a 1-tonne cargo van created by Ford, and
- A highly differentiated Ford EV for Europe based on Volkswagen’s Modular Electric Drive, or MEB, toolkit.
Volkswagen also completed its investment in Argo AI, a company in which Ford already had an ownership interest. Ford and Volkswagen will work with Argo AI to independently develop AVs at scale based on Argo AI’s innovative self-driving system.
Argo AI’s SDS, the first with commercial deployment plans for both Europe and the U.S., has the largest geographic potential of any autonomous driving technology to date. Reach and scale is important to developing a robust, cost-efficient SDS.
Ford directed much of its capabilities and resolve in the second quarter to understanding and helping meet coronavirus-related needs of customers, dealers, suppliers, healthcare professionals and first responders, and patients and communities.
Initiatives like enhanced and new online services and deferred financing payments on new vehicles in the U.S. benefitted customers and Ford as commerce stalled, then began to recover.
Ford’s an engineering and manufacturing response to the enormous global demand for personal protective and other healthcare equipment, much of it in partnership with the United Auto Workers, included the production of:
- More than 18 million face shields and 33-plus million face masks
- 50,000 patient ventilators by the end of August
- More than 32,000 powered air-purifying respirators in a collaboration with 3M
- 4 million washable isolation gowns a week for three months with suppliers, and
- About 7,500 ambulances, so far, prioritized by JMC, a Ford joint venture in China.
Wholesale shipments, revenue and earnings before interest and taxes in Ford’s Automotive business were down in Q2 with virtually all of the company’s worldwide manufacturing suspended for much of the quarter. Improvements of roughly $1 billion each in net pricing and costs partially offset the effect of the shutdown on profitability.
When it was appropriate, Ford brought its industrial, marketing, sales and service operations back up safely, efficiently and effectively. All of Ford’s regional businesses performed better than April expectations, as they further streamlined underlying operations.
After being idled for six weeks, plants in North America smoothly resumed operations and ended the quarter at about 95 percent of their pre-pandemic production levels. Overall Q2 sales were down, but Ford gained more than one full percentage point of retail share on the strength of its F-150 and Ranger trucks, and Explorer and Lincoln Aviator and Corsair SUVs.
Retail share for F-Series was up 2.5 percentage points – to more than 33 percent – just months ahead of production launch of the all-new, 2021 version of the F-150, America’s top-selling truck for 38 straight years. In July, the company unveiled reimagined versions of the legendary Bronco, along with the Bronco Sport that will expand the brand.
Launches of F-150, the all-electric Mustang Mach-E and the Bronco family will be major steps in the ongoing transformation of Ford’s vehicle lineup – and in the process delight customers, drive growth and increase profitability.
In Europe, Ford had all its plants back in operation by May 4. Operating results were favourably influenced by the further redesign of the regional business, together with a sharpened focus on Transit commercial vehicles, a category in which Ford had an industry-leading 15-per cent share in June; selected passenger vehicles, particularly SUVs and crossovers; and iconic import products.
Coronavirus risks developed and started moderating earlier in China, but persisted into Q2. Nonetheless, Ford achieved double-digit, year-over-year gains in wholesale volumes.
Growth was driven by introductions of the Ford Escape and Lincoln Corsair, together with strong sales of commercial vehicles. Corsair, the first locally produced Lincoln product, contributed to an increase in Lincoln sales, with the new Lincoln Aviator now being introduced in China.
Ford’s Q2 share was its highest in nearly two years. Strength in commercial vehicles produced a 34-percent increase in sales at JMC, a Ford joint-venture in China.
All of Ford’s regional businesses will benefit from investments in new technologies, including electrification. So far, the company has spent about one-half of the more than $11.5 billion committed through 2022 – with more to follow – to be a leader in EVs.
By the end of this year, customers around the globe will be able to choose from 15 electrified Ford nameplates expected to together account for nearly 10 percent of fourth -quarter wholesale volumes.
Among current or planned electric versions of vehicles of strategic importance to Ford are the Territory SUV BEV, already on the road in China; the all-electric Mustang Mach-E, out later this year; Escape and Kuga plug-in hybrids; the F-150 PowerBoost hybrid; and all-electric models of two of the company’s most significant vehicles, F-150 and Transit. Electric is also a big part of Lincoln’s future.
Ford Credit had another strong performance in Q2, demonstrating compelling value to customers and the company’s automotive business. In spite of economic weakness, the unit’s portfolio performance was strong, with delinquencies and charge-offs at low levels.
Ford and Ford Credit partnered on two recent programs to help auto customers facing financial hardship during the pandemic.
One resulted in extensions of loan and lease payments for about 11 percent of Ford’s U.S. customers through May – with more than 90 percent of those customers resuming their payments as of the end of July.
Another program, “Ford Promise,” gives customers who lose their jobs within 12 months of financing or leasing a new or used, 2019 through 2021 model-year Ford vehicle – from a participating Ford dealer and via Ford Credit – the option to return the vehicle.
Stone said Ford’s expectations for the second half of 2020 assume no meaningful change in the current economic conditions, continued steady improvement instability of the global automotive supply base, and no further significant coronavirus-related disruptions to production or distribution.
In that environment, he said, the company anticipates third-quarter adjusted EBIT of $0.5 billion to $1.5 billion, reflecting economic effects of the pandemic; year-over-year weaker global demand for new vehicles, parts and services; and a lower profit from Ford Credit than a year ago.
Ford plans to report third-quarter 2020 financial results on Oct. 28.
The company said its initial outlook for Q4, which features three significant product launches delayed by the coronavirus shutdown earlier this year, is an adjusted EBIT loss. That reflects normal effects on volumes from downtime, changeover and ramp up for the all-new F-150, together with continued lower overall industry units.
Wholesales of Mustang Mach -E and Bronco Sport, which will also start shipping to customers in the fourth quarter, will not have a material effect on the company’s Q4 results. Fourth-quarter profits at Ford Credit are anticipated to be lower than in the prior year.
For full-year 2020, Ford expects an adjusted EBIT loss.