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Why Ford needs to eat $1 billion more in supplier costs this quarter • londonbusinessblog.com

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Ford said Monday that third-quarter supplier costs will be $1 billion higher than expected due to rising inflation and ongoing supply chain problems.

Ford also revealed that supply shortages have led to a backlog of thousands of assembled but incomplete vehicles. Ford expects that between 40,000 and 45,000 unfinished vehicles — most of which are high-margin trucks and SUVs — will remain in the automaker’s inventory until the end of the third quarter, waiting for the necessary parts.

The shares fell 5.49% in after-hours trading.

Supply chain problems have plagued the auto industry since early 2020, when the COVID-19 pandemic prompted governments in China, the US and Europe to shut down production activities. Problems with suppliers coupled with rising inflation continue to affect automakers’ ability to supply vehicles.

For example, Rivian warned in August that it expects to lose $5.45 billion by 2022, up from the $4.75 billion estimates it split three months earlier due to “supply chain challenges” and “commodity inflation.” GM reported second-quarter net profit of $1.69 billion in July, down 40% from the same period a year ago due to supply chain disruptions and semiconductor chip shortages that caused bottlenecks at its plants.

Despite the unexpectedly higher cost and availability of certain parts, Ford is sticking to its projected adjusted 2022 profit before interest and taxes of between $11.5 billion and $12.5 billion. That’s largely because Ford expects to sell all vehicles in the fourth quarter.

Ford has adjusted its third-quarter adjusted earnings before interest and taxes to between $1.4 billion and $1.7 billion.

The company is expected to report its third quarter results on October 26.

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