Stock market investors got a good respite on Monday, as Wall Street managed to regain some ground it lost the previous week. However, on Tuesday morning it looked like the bounce could be short-lived, as there are futures contracts in the Dow Jones Industrial Average (^ DJI -1.01%)And the Standard & Poor’s 500 (^ GSPC -1.13%)And the Nasdaq Composite (^ IXIC 0.00%) It fell by three-quarters of a percent an hour before the start of the normal trading session.
The Federal Reserve has been aggressive in its moves to tighten monetary policy and increase interest rates, with the aim of controlling inflation. Consumers around the world have felt the pain of rising prices for the goods and services they need, but the impact of inflation on the business world has not always been so pronounced. It came out more clearly on Tuesday morning afterwards Ford Motor Company (F -12.32%) She gave details of how the current macroeconomic environment is putting pressure on her auto business.
What did Ford say?
Ford shares fell nearly 5% in pre-market trading as investors digested what the auto giant said about its likely financial performance for the third quarter of 2022. Although the news wasn’t all bad, investors had to adjust some of their expectations for what Ford’s results may look like the rest of the year and beyond.
Ford has been in short supply of key components for a long time now, and these supply chain challenges continue to hurt the company. The automaker anticipates that it will have to build between 40,000 and 45,000 high-margin trucks and SUVs on a “vehicles on wheels” basis, holding them back until Ford receives the necessary parts to complete them. Once those parts come in, Ford plans to send them to dealers for sale, but delay pushing those deliveries into the fourth quarter.
In addition, suppliers complain about the high costs they face when offering critical parts and components. As a result, these suppliers negotiated with Ford to try and pass on some of their higher costs to the automaker. Ford estimates that as a result, its suppliers’ costs will be about $1 billion higher than it expected to pay.
So Ford expects its adjusted pre-tax income to be between $1.4 billion and $1.7 billion. That’s down from previous guidance for the quarter, but Ford was adamant that it didn’t change its full-year forecast for between $11.5 billion and $12.5 billion in adjusted income before tax.
Can Ford catch up?
The implication in Ford’s forecast is that the automaker hopes to resolve all of its financial stress by the end of 2022. Ford takes an optimistic view that supply chain problems will only delay business rather than lose business.
Given the recent malaise in the auto markets, Ford’s optimism may be warranted. With consumers waiting for weeks or even months for the cars and trucks they want to have in stock, it’s reasonable to believe that a hungry consumer market could hold an additional 40,000 to 45,000 vehicles, even toward the end of the model year when most auto dealers are also looking to clear inventory to make room Domain for newer vehicles.
The payoff, however, is whether inflation will harm consumers’ ability to keep buying cars and trucks at the same rate. Even with the recent drops in gasoline prices, not many people have the same amount of discretionary income to afford a car upgrade right now. Higher interest rates can increase the costs of consumer debt and allocate more money from potential buyers.
If Ford continues to see shoppers coming to its dealer doors, its expectation that it will weather its own supply chain storms could prove investors wrong about Tuesday’s stock price plunge. But if inflation hurts its customers, Ford could face a long-term problem.
Dan Caplinger has no position in any of the listed stocks. The Motley Fool does not have a position in any of the stocks mentioned. Motley Fool has a disclosure policy.