Previously in this series, we learned about the key factors driving Ford Motor Company’s (F) margins down in recent quarters. Apart from one-time costs related to vehicle recalls, sinking profitability in Ford’s truck segment could be the key issue.
Moreover, unfavorable currency movements also took a toll on Ford’s revenues during the year. In this article, we’ll understand why currency headwinds may continue to affect Ford’s business and profitability going forward.
Currency headwinds continued
In 1Q16 and 2Q16, unfavorable currency movements stole ~$64 million and $58 million, respectively, from Ford’s bottom line. In 3Q16, these currency headwinds rose to $184 million. The company has lost about $306 million in profits in the first three quarters of 2016 due foreign exchange headwinds. A weak Chinese yuan and a strengthening US dollar have hurt Ford’s profitability in its key international markets.
Impact of the Fed’s rate hike
On December 14, 2016, the Federal Reserve announced its much-awaited decision to raise interest rates by 25 basis points. This announcement triggered a rally in the US Dollar Index, which posted a high of 103.65 on December 20, 2016—its highest level since 2003.
Note that a stronger US dollar is likely to adversely affect US automakers’ profitabilities while supporting the profitabilities of their European and Japanese competitors. In addition, the Fed has indicated the possibility of more rate hikes in 2017, which could keep the US Dollar Index’s strength intact. This strength in the US dollar may continue to hurt Ford’s business going forward.
Continue to the next article to learn about how Ford Credit performed in the first three quarters of 2016.