Generally speaking, when automakers such as Ford Motor Company (F +0.76%) bring in awards at the end of the year, it's positive news.
There are exceptions to that, however. One exception, and an award Ford would prefer to stop winning, is having the most U.S. vehicle recalls – for the second straight year.
Automotive recalls are an unfortunate part of business, but how much will this impact Ford and its investors in the near term? How do Ford's recalls compare to other major automakers? What's causing elevated recalls, and what's Ford doing to fix the underlying issues?
These are all important questions for investors, so let's dig in.
When winning is losing
Through the middle of December, Ford had issued 65 recalls that affect more than a staggering 8.6 million vehicles in 2022. That was an increase from Ford's prior year, which recorded 53 recalls covering roughly 5.4 million vehicles.
NYSE: F
Key Data Points
For comparison, cross-town rival General Motors (GM +1.53%) had 30 recalls that affected over 3.2 million vehicles. Stellantis (STLA 0.80%) North America had 38 recalls affecting just over 3 million vehicles.
There are a number of factors that go into elevated recall levels. As major automakers unveil new technology and a list of new models, recalls will generally increase. While increased recalls can be expected as Ford unveils new models, it's also fair to say that the automaker's quality isn't where it expects.
"We're improving our launch and initial quality, but our overall quality isn't as good as it should and can be. That's why we're deploying a comprehensive end-to-end process to raise quality and keep it high", said Ford CEO Jim Farley, according to Automotive News.
Look at the bigger picture
Yes, Ford recalling the most vehicles for two consecutive years isn't something the automaker wants to make a habit of. However, before we get to how much this impacts the automaker's sales, it's important to take a look at the bigger picture.
Ford admits it wants to improve its initial quality, however, the automaker is far from the worst, according to J.D. Power's 2022 U.S. Initial Quality Study. The study, in its 36th year, is based on a 223-question survey covering nine vehicle categories and is designed to provide information regarding the number of quality issues in specific vehicles and brands.
In the previously mentioned study, Ford brand ranks 10th out of the 33 brands listed best (1st) to worst (33rd), with 167 problems per 100 vehicles, or PP100. Ford checked in better than the industry average of 180 PP100, although it was behind GM's Buick, Chevrolet, GMC, and Cadillac brands.
What's the impact?
Most importantly for investors, how will these recalls impact current and future sales? The answer might surprise you: the impact of recalls on a consumer's willingness to return for another purchase, from the same brand, is "pretty minor", according to Chris Sutton of J.D. Power.
"Most customer service work, depending on the type of work that was, 35 percent of the customers said they'll definitely come back and repurchase that brand," said Sutton, citing a 2022 J.D. Power Customer Service Index study, according to Automotive News. "If a customer comes in on a recall, that goes down to 32 percent of the customers [who] said they definitely will repurchase the brand."
It's also fair to note that even massive recall scandals, such as General Motors' ignition switch scandal from nearly a decade ago that covered 30 million vehicles worldwide, did not derail the company long-term. In fact, in 2014 as GM's recalls swept the nation, GM maintained market share in the U.S. market and set a record for global sales.
What investors should focus on
Rather than worry about leading the industry in recalls, investors would be better off focusing their investment thesis on other aspects of Ford.
One important aspect for Ford is its accelerated EV strategy, and it's gaining momentum. Ford sales of EVs more than doubled in 2022 and are growing at twice the rate of the industry -- in fact, Ford's EV sales were up 223% in December alone. It's F-150 Lightning was the No. 1 selling electric truck in America for November and December and helped push Ford EVs to the No. 2 EV brand in the U.S. market.
In addition to Ford's expanding EV lineup, its traditional internal combustion engine vehicles continue to thrive. The F-Series sales topped 650,000 trucks which was good enough for the best-selling truck for 46 consecutive years, and best-selling overall vehicle for 41 straight years. Its collection of SUVs expanded Ford's share of the segment by 1.2 percentage points to 10.3%, led by the Bronco which controlled 36.4% of its SUV segment, the highest level since its launch.
Until the world adopts EVs at a more rapid pace, Ford's full-size trucks and SUVs will continue to haul the majority of the automaker's profits, and that isn't likely to change much at all due to current recalls.
The bottom line
While Ford would prefer to top the list for most recalls in the U.S. ever again, it's part of business in the automotive industry and the company is focusing on improving quality. It's also important for investors to note this isn't a massive recall scandal compared to prior industry incidents, and that the headlines are much worse sounding than the actual impact to consumer retention than you might think.
Ford has quality issues to improve, but investors can focus their investment thesis on other aspects of the company, rather than headlines regarding massive recall figures.
