Ford’s quarterly profit was a surprise even for the company’s top management.
“I can tell you this outcome was far from certain at the beginning of the quarter,” said Ford CEO Jim Farley. While he said the “situation remains fluid” for the supply of chips going forward, he expects to see improvement going forward.
There are 120,000 reservations for the F-150 Lightning, which won’t be available until next spring, and 120,000 unfilled orders for the Broncos which only recently went into production, Ford said. More than 70% of orders for both vehicles are from customers new to Ford.
“After effectively managing through the first half, we are now spring-loaded for growth in the second half and beyond because of those red-hot products, pent-up demand and improving chip supply,” said Farley.
And while it usually takes time for automakers to make profits on electric vehicles early in their production run, CFO John Lawler said that the Mustang Mach-E is already profitable in its first year of availability.
A new way of selling cars
Farley said navigating through the chip shortage has led Ford to make fundamental changes in the way it conducts business. It now expects to sell far more vehicles to customers who order a specific vehicle and have Ford build it for them, rather than shipping the vehicles to dealers to sell to walk-in customers.
The “order bank” for vehicle pre-orders by customers is seven times greater than it was at this time a year earlier, he said, and doesn’t include reservations for the F-150 Lightning or most Bronco orders.
“We have learned that, yes, operating with fewer vehicles on lots is not only possible but it’s better for customers, dealers and Ford,” Farley said. He said more customer orders lower inventories for Ford and its dealers and better reflects actual demand, and less need to use cash-back and financing offers to move vehicles already in inventory.
“I know we’re wasting money on incentives,” Farley said. “I just don’t know where. With an order-based system, we will have much less risk of that.” And the upside for buyers is that “they more quickly get the precise vehicle they want.”
Shares of Ford rose 4% in after-hours trading following the report.