Ford is one of the most iconic automakers in America, but as the Great Recession showed, it’s not too big to fail. There are many things that may cause the company problems in the future, and Ford is aware of many of them. Here are a couple of the biggest risk factors that Ford is facing, according to its annual report.
Large cars, recessions, and climate change
As Ford mentioned, Ford’s financial success is especially dependent on the sales of its larger vehicles, such as trucks and SUVs. Indeed, as Ford said, of the 2.5 million vehicles sold by Ford in the U.S. in 2018, over 2 million of them were either trucks or SUVs. This means that about 80% of Ford’s sales in America were large vehicles.
That’s great for Ford right now, as the F-150 is the best selling vehicle in America so far in 2019. However, as the Great Recession showed, when pockets need to be pinched, cars tend to be the easiest way for families to do so. Rather than buying a gas-guzzling truck, in hard times, families will opt for a more fuel-efficient sedan.
This logic also applies to climate change, too. Many consumers are wary of polluting too much, and so many consumers are prioritizing fuel-efficiency when deciding on what car to buy. This can also lead to more people choosing a sedan over a truck.
Ford does have a couple of responses to these risks. Ford is known for its fuel-efficient diesel engines, which make a F-150 pretty economical. Furthermore, Ford’s also electrifying its fleet and it recently showed off an all-electric F-150. Things like that will allow Ford to continue selling large vehicles while still being environmentally conscious.
Trade wars and protectionism
The U.S. is currently embroiled in several trade wars with several different countries, and this can have an adverse effect on Ford’s bottom line. For example, Ford mentioned that the U.S. government’s tariffs on foreign goods can increase the cost of doing business for Ford. This will ultimately make Ford’s cars more expensive, which isn’t good for both Ford and consumers.
Furthermore, Ford is extremely worried about political events like Brexit, which aims to take the United Kingdom out of the European Union. The U.K. is a major market for Ford, and Brexit will severely harm its business in the UK.
In fact, Ford estimates that if a hard Brexit, which is a Brexit where the U.K. leaves the EU without a deal, happens, then Ford may lose up to $1 billion in revenue a year.
There’s not much Ford can do about these issues, but fortunately for Ford, these issues will affect Ford’s competitors too.
Unions, strikes, and suppliers
As the recently concluded UAW strike against General Motors showed, a strike can severely hurt Ford’s operations in areas where its workers are unionized. According to CNBC, the UAW strike cost GM almost $4 billion after a 40-day strike. If a similar strike happens to Ford, then Ford will be severely harmed as well.
However, that’s not the only potential risk that Ford faces from its unionized workers. Members of the union will get pension benefits among other things, and if Ford can’t afford to pay these benefits, then Ford will have to reduce its expenditures in other areas.
Furthermore, Ford mentions that many parts that are used by Ford’s vehicles come from a single supplier. If anything happens to these suppliers, then that can severely slow down the production of a Ford vehicle. This can hurt the company’s bottom line.
There’s not much Ford can do in this area, as unions are just a matter of life. But, this does show how interconnected the economy is and how if one part of it fails, then it can easily affect other parts of the economy as well.
As we’ve seen, many of these risk factors are out of Ford’s control. It helps that the company is aware of them. However, in the end, it will be up to Ford to quickly adapt to try to meet the challenges of a complex world economy.