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Weak US Dollar Could Favor Ford’s Business in 2018

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Ford’s profitability

Previously in this series, we discussed how a recovery in Ford’s (F) North America profits helped boost its global profit margins in 3Q17. Apart from higher structural and contribution costs, unfavorable currency movement also took a toll on Ford’s profits during the year. In this part, we’ll discuss why these currency headwinds might continue to impact Ford’s profitability.

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Currency headwinds

In the first and second quarter of 2017, unfavorable currency movement stole ~$223 million and $154 million, respectively, from Ford’s pre-tax profits.

In the third quarter, the currency headwinds rose to $266 million. Ford has lost ~$643 million in pre-tax profits in the first three quarters of 2017 due foreign exchange headwinds.

Most of the headwinds were driven by weakness in the British pound, Canadian dollar, and Brazilian real. In the third quarter, the company suggested that weakness in the Thai baht, Indian rupee, and Argentine peso also had a negative impact on its profits.

While a strengthening US dollar hurts US automakers (IYK) like Ford and General Motors (GM), it favors Japan and Europe-based automakers like Toyota (TM) and Fiat Chrysler (FCAU).

Recent weakness in the US Dollar

As of December 19, the US Dollar Index has fallen nearly 10% in 2017. It could favor Ford’s European and Japanese business units and boost the profitability from these regions in the coming quarters.

On December 13, 2017, the Fed announced an interest rate hike by 25 basis points. However, uncertainty about the upcoming rate hikes in 2018 kept the US Dollar Index on a weak note. Weakness in the US dollar might act as a tailwind for Ford’s international business units going forward.

Next, we’ll discuss how Ford Credit has performed in the first three quarters of 2017.

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