Is Ford's Big Problem Rearing Its Ugly Head Again?

Let's take a moment to rewind back almost a year ago, when Ford Motor Company (NYSE: F) reported second-quarter earnings for 2024.

"It's a code-red situation at Ford after a disaster quarter," Daniel Ives, an analyst at Wedbush Securities, said in comparison to healthy results at crosstown rival General Motors, according to The Detroit News.

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Part of Ford's "disaster" quarter was due to rising warranty costs, which cover vehicles leaving the factory with defects that later require repairing. In recent years, Ford has continuously found itself near the top in the volume of U.S. vehicles recalled, and it has weighed on the Detroit icon's bottom line.

After a couple of recent recalls, is this problem rearing its ugly head again? Not so fast -- let's dig in.

Hardware vs. software

In late May, Ford issued a recall for 1,075,299 vehicles in the U.S. over an issue that could prevent the rearview camera from displaying images, which increases the risk of a crash, according to the National Highway Traffic Safety Administration (NHTSA).

At first glance, this number is alarming, considering Ford's annual recall volume is generally around 4 million to 6 million total. But not all recalls are created equal, and that's the case here as well.

Within months of being contacted by the NHTSA, Ford was able to reproduce the camera failure and fix the software through an over-the-air update, free of charge. That's the clear difference between hardware, which requires a consumer to bring the vehicle to a dealership for repairs, and software that can be fixed over the air.

This isn't a recall that's going to cost Ford much, and it certainly won't noticeably weigh on earnings. The next example is a different story.

EV challenges

Ford also recently announced that it will recall nearly 30,000 F-150 Lightning electric pickup trucks sold in the U.S.. The reason is a suspension nut loosening or missing entirely. The majority of affected vehicles, or 20,528, are from the 2024 model year, with the remaining from the 2025 model.

Ford F-150 Lightning. Source: Ford Motor Company.

This is where the hardware vs. software aspect comes into play. To fix the issue for affected vehicles, Ford and Lincoln dealers have to inspect the torque of the nut on the ball joint of the left and right upper control arms. If it passes inspection, the nut is replaced; if it fails inspection, the knuckle and nut will be replaced. This is not only a physical process, but far more expensive than a simple over-the-air blast to fix a million vehicles, essentially all at once.

While this recall for hardware will cost Ford, the small volume of vehicles won't move the needle at all for the automaker's financials.

What it all means

For investors, what's important to realize is that while headlines about recalls can be very loud, not all of them are created equal, and these two in particular don't raise any red flags in terms of earnings being affected.

Ford has made a focused effort on improving quality over the past few years, and most of the issues are on vehicles produced prior to 2021. Despite the company's focus on improving quality and reducing warranty expenses, management warned that it will take at least 18 months to see the benefits of new processes and lower warranty costs – my guess is perhaps even longer.

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Daniel Miller has positions in Ford Motor Company. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.