Key Factors Impacted Ford’s Profit Margins

In 2016, Ford Motor Company (F) reported an adjusted gross margin of 11.5%—lower than 11.76% in the previous year. The company’s 2016 adjusted pre-tax profit margin fell to 7.33% from 7.68% in 2015. For the year, Ford also posted a lower adjusted net-profit margin at 4.98%—compared to 5.49% a year ago. The negative trend in its profitability continued in 1H17 before it recovered in 3Q17.

In 1Q17, Ford reported a gross profit margin of 10.3%. The margin reflected weakness compared to the gross margin of 14.1% in the same quarter the previous year. For the quarter, the company’s operating margin also fell sharply to 5.4% from 9.8% in 1Q16.

Similarly, Ford’s 2Q17 adjusted gross margins stood at 11.55%—lower than its adjusted gross margin of 13.2% in 2Q16. The company’s operating margin fell to 5.9% in 2Q17 from 7.7% in 2Q16.

In 3Q17, Ford’s profitability improved with an adjusted gross margin of 9.98% and operating profit margin of 5.0%. In 3Q16, the company reported a much lower operating profit margin of 3.3%. However, the operating profit margin was still lower than General Motors’ (GM) 3Q17 operating profit margin of 5.7%.

In 1H17, Ford’s operating margin largely fell in all of its key markets except South America on a YoY (year-over-year) basis. The company’s higher structural and contribution costs were among the key factors that hurt its global profitability.

In the third quarter, solid profitability from North America led to the increase in Ford’s profits.

In the auto industry, Fiat Chrysler (FCAU) has the lowest margins among all of the mainstream automakers (IYK). Interestingly, Fiat Chrysler managed to improve its profit margin in the last six consecutive quarters—unlike Ford. Among these auto giants, Toyota Motor (TM) maintains the highest profit margins.

Next, we’ll discuss how unfavorable currency movement in 2017 was another key factor that hurt Ford’s profitability.