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Will Thai Court’s Ruling Raise Questions about Ford’s Quality?

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Ford Motor Company

Ford stock has fallen in five of the first eight months of 2018. The stock has faced investor pessimism in the last three months. On a month-to-date basis, the company has risen by 1.2% as of September 24. Meanwhile, General Motors (GM) has lost 3.6% month-to-date, while Fiat Chrysler (FCAU) and Ferrari (RACE) have gone up by 7.0% and 6.0%, respectively.

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Thai civil court’s ruling against Ford

According to the Bangkok Post, the South Bangkok Civil Court in Thailand “ordered Ford Sales & Service (Thailand) to pay 291 car owners for substandard vehicles in the country’s first class-action ruling” last week. In its order, the civil court asked “Ford Motor to pay 291 customers compensation in a range between 20,000 and 200,000 baht each” ($616 to $6,163). In addition, the company also must pay “a 7.5% interest rate a year, for repair costs and lost time.”

The joint lawsuit was filed by owners of Ford “Fiesta and Focus models produced in 2011” due to a problem involving the car’s PowerShift transmission. While this ruling might not directly affect Ford’s long-term business plans, it might raise questions about the quality of its vehicles in the consumers’ mind.

Q3 2018 estimates

Wall Street analysts estimate (XLY) Ford’s third-quarter adjusted earnings to drop by 26% YoY to $0.32 per share. At the same time, analysts expect Ford’s adjusted net profit margin to be at 3.7% in the third quarter, reflecting sequential improvement from 3.1% in the second quarter. However, the reported net profit margin is much worse than the 5.2% reported in the third quarter of 2017.

These lower third-quarter earnings estimates could continue to hurt investors’ sentiments in the coming weeks and keep Ford’s stock mixed to negative.

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