Shut down since March because of the coronavirus pandemic, Ford Motor Co. (NYSE: F) plants are scheduled to reopen this week. But the road ahead looks bumpy for the Dearborn, Michigan-based automaker.
After reporting a $2 billion net loss in the first quarter, the company warned that losses could hit $5 billion in the current quarter. The pandemic’s impact on the company is so deep that Ford said last month that “protecting people and helping society respond to the crisis became primary measures of current success alongside balance-sheet management and operational excellence.”
While car manufacturing was idled, Ford has been busy. In partnership with GE Healthcare, Ford committed to producing 50,000 ventilators in 100 days, with the capacity to build 30,000 more per month if needed. The company has also been churning out face shields and ambulances.
Getting back to business, Ford plants in Europe and Asia reopened earlier, since those regions were further along the pandemic timeline. Enhanced worker safety protections tested overseas will be implemented in America.
Initially, factories plan to run fewer shifts, which may also fit lower demand. North American assembly plants previously operating on three-shift patterns will return with two shifts. Most two-shift plants will return on one shift, and most one-shift plants will continue to operate on one shift.
An Unknown Variable: The Supply Chain
One factor that’s out of Ford’s control is the supply chain. When the big three automakers shut their plants, it had a ripple effect down the chain.
Those suppliers now have to restart their own businesses, and ensure the safety of their own workers. A factory outbreak of the virus would grind everything to a halt. Automakers and suppliers could also be hit by higher-than-usual absenteeism, due to fear of coronavirus and lack of childcare.
“Factories in Mexico, which produce nearly 40% of the car parts imported to the U.S., aren’t yet permitted to reopen, and in many parts of that country the pandemic has yet to peak,” The Wall Street Journal reported Monday.
In Alabama, Daimler is being forced to temporarily halt production this week on its Mercedes-Benz SUVs due to problems with its international suppliers.
“It’s a very complex formula, because the ecosystem of getting our plants back up to full production is complicated,” Ford Chief Operating Officer Jim Farley said in the company’s annual shareholders meeting last week. “It will really come down to our suppliers’ preparation.”
Will Anyone Buy a Car?
Reopening factory lines is a positive sign but it doesn’t mean consumers are going to buy. Q1 Ford sales dropped 12.5%, with the pandemic hitting the U.S. in March. Sales were certainly abysmal in April as the U.S. went into lockdown.
As states slowly reopen this month, dealerships may start to see more shoppers. And automakers report increased online sales from shop-at-home consumers. But the prospect of a long recession is likely to dampen sales of all products, especially big-ticket items like automobiles.
Last week, CEO Jim Hackett told shareholders: “The true economic fallout … won’t be known for some time. And we’re mindful there might be new (coronavirus) outbreaks ahead. That’s why we’ve taken significant actions to reduce costs, preserve cash, and make sure we’ve got the financial flexibility to ride this out and emerge as a stronger company on the other side.”
One big issue at the May 14 Ford shareholders meeting: the company’s stock price, which lagged competitors before COVID-19. Ford shares closed at $4.90 on Friday, while General Motors Co. (NYSE: GM) closed at $22.63. Fiat Chrysler (NYSE: FCAU) closed at $7.82.
Executive Chairman Bill Ford said, “Coming out of COVID, it really is all about performance and executing on our plan.… Management’s compensation is heavily tied to our stock, so it’s in everyone’s interest to get our stock price back up.”
The Detroit News reported that Bill, the great-grandson of company founder Henry Ford, is deferring his salary for five months, while other execs defer 20% to 50% of their salaries.
Also of interest to shareholders: the company’s dividend. Ford suspended its dividend in March to conserve cash, but execs say it will return when the situation improves.
Some shareholders have been critical of Ford’s two-tier stock structure, which gives the Ford family greater voting power. But a proposal to eliminate the current system was defeated at last week’s meeting.