Three months ago, Ford Motor (NYSE:F) CFO Tim Stone had a dire warning for investors. During Ford's first-quarter earnings call, Stone said that the automaker was likely to report an adjusted operating loss of more than $5 billion for the second quarter, due to the impact of the COVID-19 pandemic.

Fortunately, industry conditions weren't as bad as expected last quarter, allowing Ford to report a much smaller operating loss. Nevertheless, the Blue Oval continues to struggle relative to crosstown rival General Motors (NYSE:GM). And while Ford has promising new products in the pipeline that should drive a big improvement in profitability, a meaningful turnaround now appears unlikely to materialize until 2022.

The Q2 numbers

Ford began the second quarter with operations paused in many of its major markets. In Europe, production resumed at all facilities by May 4. Most factories in North America got back to work on May 18, and production in that critical region reached 95% of pre-pandemic levels by the end of the quarter.

As a result, Ford's revenue fell 50% year over year to $19.4 billion last quarter on a 53% decline in wholesales. The storied automaker reported an adjusted operating loss of $1.9 billion: more than $3 billion better than its April outlook. Management said that all regions outperformed expectations. Ford's adjusted net loss came in at $0.35 per share, and adjusted free cash flow was -$5.3 billion.

Under generally accepted accounting principles (GAAP), Ford actually earned a quarterly profit of $148 million (0.04 per share). This was driven by a $3.5 billion gain on its investment in Argo AI, related to Volkswagen's recent investment in the autonomous vehicle developer.

A white Ford Ranger parked on a rocky outcrop

Image source: Ford Motor Company.

It was certainly a relief for investors that Ford's earlier prediction of a $5 billion-plus adjusted operating loss didn't come true. Still, the company lagged behind top rival General Motors, continuing a recent trend. GM reported a modest adjusted operating loss of $536 million in Q2.

The one area where Ford outperformed General Motors last quarter was on free cash flow. GM burned through $9 billion: significantly more than Ford's $5.3 billion of cash burn. That said, temporary working capital pressure reduced GM's cash flow by $8 billion, whereas Ford reported a smaller headwind from working capital movements. This suggests that GM will ultimately come out ahead on this metric, too.

The second-half outlook remains weak

For the third quarter, Ford projects an adjusted operating profit between $500 million and $1.5 billion. However, it expects to swing back to an operating loss in the fourth quarter and for the full year. The weak fourth-quarter forecast primarily reflects production downtime and launch costs associated with the introduction of an all-new version of the lucrative F-150 full-size pickup for the 2021 model year.

This outlook stands in stark contrast to what GM expects. On the General's recent earnings call, CFO Dhivya Suryadevara estimated that if recent trends continue, the company would post an adjusted operating profit of $4 billion to $5 billion for the second half of 2020. This would give it a respectable full-year adjusted operating profit between $4.7 billion and $5.7 billion.

Ford's turnaround will take time

Despite Ford's current struggles, there is a light at the end of the tunnel for shareholders. Once production of the new F-150 ramps up, that dominant franchise is likely to become more profitable than ever. Ford is also poised to capitalize on its strategic shift away from cars and toward crossovers and SUVs with the launch of the Mustang Mach-E electric SUV and the Bronco and Bronco Sport off-road SUVs. Finally, restructuring of Ford's struggling international operations should improve profitability outside the U.S.

Demand for the Blue Oval's new products is extremely strong. Ford appears to have reservations for the Mustang Mach-E's entire 50,000-unit first-year production run already. Even more impressively, Ford has accumulated over 150,000 Bronco reservations since the new model was unveiled just a few weeks ago.

Realistically, though, Ford's turnaround won't really gain traction until 2022. For one thing, weak economic conditions could weigh on sales. And from a product perspective, the Ford Bronco won't begin reaching customers until next June. Production of both the Bronco and the Mustang Mach-E will be capacity constrained next year, whereas by 2022, it should be possible to increase output significantly if demand remains robust. It also might take a few quarters for production of the new F-150 to really hit its stride, if history is a guide.

It seems like Ford CEO Jim Hackett has been pleading for patience ever since taking the helm more than three years ago. Investors may need to be patient for a little while longer. By 2022, a revamped product portfolio could power a strong earnings recovery at Ford.