09/08 07:37 =DJ UPDATE: Ford Recall Could Cripple Drive To Profits >F
By John D. Stoll Of DOW JONES NEWSWIRES
DETROIT (Dow Jones)--Ford Motor Co.'s (F) announcement of a massive vehicle recall Wednesday could slow the company's drive to cut costs and hurt its effort to boost respectability in the U.S. marketplace.
The auto maker said Wednesday it is calling back 3.8 million pickups and SUVs in order to fix a highly publicized problem with a cruise-control switch that could overheat and lead to fires under the hood. The switch has been under the scrutiny of the National Highway Traffic Safety Administration and has been the subject of a string of lawsuits and calls for action by consumer advocates.
Jesse Toprak, an analyst with consumer-research firm Edmunds.com, estimates the recall's price tag could be as high as $400 million, depending on the cost of replacement parts and the amount of time the vehicle has to spend in service.
"We're not disclosing any financial impact as it relates to today's action," Ford spokeswoman Becky Sanch said.
Shares of Ford rose 17 cents, or 1.7%, to close at $10.13 on Wednesday.
Ford's recall comes at a particularly bad time for the auto maker given that it is looking to boost its sagging image with a new high-volume sedan. Ford has also slashed its white-collar workforce and cut administrative expenses in an attempt to improve this year's profit.
Bernstein & Co. analyst Brian Johnson said it is hard to estimate how much the recall will cost Ford, which covers recall-related repairs by dipping into its warranty reserves, but it will hit the company's bottom line.
"It really depends on what their warranty reserves are," he said, pointing out that auto makers rely on keeping as much money in reserve so that they can report positive gains on warranty costs and potentially improve results in year- end financial statements.
(Johnson doesn't own Ford shares.)
Ford spokeswoman Sanch said the company doesn't disclose specifics on warranty reserves.
The action is especially costly to Ford as it is at least the second time some of the Ford vehicles being recalled have been called back for this issue. Some 792,000 vehicles from the 2000 model year included in the latest recall were recalled in January for cruise control causing fires, Ford spokeswoman Kristen Kinley said, but Ford couldn't correctly diagnose the problem at the time.
This time around, Ford is voluntarily recalling F-150 pickup trucks made from 1994-2002, Ford Expeditions built from 1997-2002, Lincoln Navigators built from 1998-2002 and Ford Broncos built from 1994-1996. Ford dealers will install a fused wiring harness to act as a circuit breaker in order to prevent increased current flow through the switch.
The recall comes the same day consumer activist Ralph Nader sent a letter to Ford Chief Executive Bill Ford asking him to recall these trucks, along with some Ford cars that Nader says use a similar cruise-control switch.
Edmunds.com's Toprak suggests that Ford's quality perception may be at as much risk as the company's bottom line in the wake of the recall, especially as it stages a high-profile car launch. The auto maker is putting on sale this month an all-new sedan, dubbed Fusion, that is designed to take on Japanese leaders in the U.S. sedan market, which are consistently given high quality marks.
"The longer lasting impact on (Ford's) brand image is a very important issue," Toprak said, pointing to the Firestone tire fiasco involving the Ford Explorer SUV that surfaced in 2000 and lingered for about a year. The action ended up costing the auto maker $3 billion to replace 13 million affected tires.
"How well they handle the recall will determine how dramatic the impact on the brand it will have," Toprak said.
Public Citizen President Joan Claybrook said in an interview that Ford is to be applauded for issuing the recall on a voluntary basis before NHTSA, which has been investigating the issue, mandated a fix. Nevertheless, "Ford did it under duress," Claybrook insists. She said media coverage of lawsuits and consumer complaints pushed the company's hand.
Spokeswoman Kinley said Ford will not comment on settled or existing lawsuits related to the recall.
The news came on the same day Toyota Motor Corp. (TM) issued a press release concerning a recall of 978,000 sport-utility vehicles and pickup trucks amid concerns over the power steering system. The Japanese auto maker said 4Runner SUVs, compact pickups and T-100 pickups built between 1989 and 1998 are fitted with a rod linking the steering wheel and the wheels that may fracture, but no injuries have resulted from the issue.
Charlie Vogelheim, an analyst with the quality-tracking firm J.D. Power & Associates in California, said although Toyota's recall "could affect long-term satisfaction of existing customers," the action will probably not tarnish the company's stellar quality reputation. He said Ford's recall likely overshadows Toyota's because of the scope of the issue. "Toyota can roll underneath ( Ford's bigger recall) at first blush," he said. "A recall like this isn't as big an issue." |
