The financial penalty for a quality glitch took center stage in Ford's (F) - Get Report third-quarter financial statement, as the No. 2 U.S. automaker disclosed that it booked $600 million as the potential cost of a September recall for faulty door latches.
The cost of the recall, while substantial, was slightly less than Ford originally thought. The automaker reaffirmed guidance for $10.2 billion of adjusted pretax profit for the entire year.
Profit fell 56% for the quarter to almost $1 billion, though less than analysts' forecasts, due to the recall and to slower sales in the U.S., Ford's most important market, and around the globe.
Ford has been investing heavily to bring out a heavy-duty version of its full-size F Series pickup truck and to increase expertise and development of autonomous technology. The automaker has said it intends to introduce a driverless vehicle in about five years.
"We're going to stay real focused on putting out a great product, running a responsible business and growing in emerging mobility areas," Mark Fields, CEO, told an interviewer on Bloomberg Television.
Ford shares were down 1.5% Thursday. Investors drove General Motors (GM) - Get Report shares lower a day earlier, even though GM reported a doubling of quarterly net income. The trend could reflect broad investor sentiment that the automotive market has peaked in the U.S. and that growing profit will be difficult to achieve for some time.
In September, Ford said it would spend $640 million to replace door latches on about 2.4 million cars, trucks and vans because the doors can pop open while they are being driven. Complaints about the problem have been flooding the National Highway Traffic Safety Administration since 2014. An earlier, more limited recall was deemed insufficient by NHTSA.
Bob Shanks, Ford's chief financial officer, said Thursday "we have had some supplier issues."
He added, There's never a perfect launch. These are very complicated vehicles with thousands of parts coming together."
Ford earlier this month announced the temporary shutdown of five assembly plants to reduce the number of unsold vehicles on dealer lots. Production will be trimmed in the fourth quarter as well, the company said. For the July-to-September period, sales of Ford cars and light-duty trucks in the U.S. fell 6.7% to 632,123.
Cash flow for the period equaled a negative $2 billion, as expenditures and investments outstripped revenue from the shipment of vehicles to franchise dealers. The company said cash flow will be positive in the current quarter.
Doron Levin is the host of "In the Driver Seat," broadcast on SiriusXM Insight 121, Saturday at noon, encore Sunday at 9 a.m.
This article is commentary by an independent contributor. At the time of publication, the author held no positions in the stocks mentioned.