Ford Motor Company (NYSE:F) warned investors that it plans to take one-time charges of over $2 billion against its fourth-quarter earnings, the result of a recall and an accounting issue related to its pension funds.
Ford said in a regulatory filing on Thursday that a recall of about 2.7 million vehicles made between 2006 and 2012, to replace defective airbag inflators made by Japanese supplier Takata, will result in a charge of about $610 million against its fourth-quarter earnings.
About 67 million vehicles worldwide have been recalled to replace airbag inflators made by Takata, which can explode without warning. The Takata inflators in the Fords affected by this recall are a different design from those recalled over the last decade, which are blamed for numerous deaths and injuries. But regulators have asked automakers to replace them on concerns that they may not function properly when the airbags are deployed.
Separately, Ford said that it expects to record a one-time charge of about $1.5 billion related to its pension funds. This is purely an accounting charge. The automaker uses what is called the mark-to-market method of accounting for its pension and retiree-benefit funds; under that method, gains and losses in the funds' investments are recorded as they happen, rather than amortized over time.
Put another way, Ford's funds lost about $1.5 billion in value in 2020, as declines related to lower interest rates exceeded the funds' returns on assets. (Ford took a similar noncash charge of $2.2 billion against its earnings in the fourth quarter of 2019.)
Ford will report its fourth-quarter and full-year 2020 earnings results after the U.S. markets close on Feb. 4.