What happened
Shares of Ford Motor Company (F +2.77%) slumped in afternoon trading Friday, falling 4.6% through 12:30 p.m. ET after the automotive giant announced a recall of more than 1.5 million vehicles.
NYSE: F
Key Data Points
So what
In the larger of two recalls adding up to a total 1.5 million, Ford recalled 1.3 million Ford Fusion and Lincoln MKX midsize cars from model years 2013 through 2018, reported AP this morning. The issue prompting this recall involved front brake hoses that can rupture and leak brake fluid, making it harder for a driver to slow or stop. Ford is offering to replace any defective hoses.
So far, just one crash has been reported in relation to the defect. Ford says it expects only about 2% of the vehicles that are recalled to actually require replacement.
Nevertheless, it's a sizable recall, and the question for investors will be whether Ford will lose more money making the estimated 26,000 repairs or make more money by drawing 1.3 million Ford owners into its showrooms while their vehicles are being examined. There, Ford can try and sell them brand new vehicles while they're waiting!
In an entirely separate recall, AP says Ford is also recalling 222,000 model-year 2021 F-150 pickup trucks to examine their windshield wiper arms for risk of breaking. Similar question here: Will the potential benefits of bringing 222,000 customers into showrooms outweigh the cost of replacing a few windshield wiper arms?
I rather expect they might.
Now what
This, in a nutshell, is why I think investors might be overreacting a bit in selling off Ford stock on news of 1.5 million recalls today. On the one hand, it's true that recall announcements might not be great for a car manufacturer's reputation. Then again, Ford isn't much of a car manufacturer today, making essentially all of its profit from truck sales. (And Ford's truck recall isn't nearly as big as its car recall.)
For that matter, recalls these days are pretty routine. I get at least a few recall notifications in my NHTSA inbox every week, and after a while, those notifications just turn into background noise. They don't really affect my impression of an automotive company's reputation for quality anymore.
Viewed in that context, and weighing the side benefit of getting a chance to upsell customers while they sit around waiting for their recall issues to be addressed, a few more recalls might not be such bad news for Ford stock at all.
