Ford Keeps Disappointing Investors in This Key Factor -- and 1 Graph You Have to See

Key Points

• Ford's 90 recalls so far in 2025 already sets a record.

• Recalls don't typically impact auto stocks, but there are exceptions.

• This recall will incur a special item on earnings, not impacting adjusted earnings.

• 10 stocks we like better than Ford Motor Company ›

Ford Motor Company (NYSE: F) is known for many things, including championing the moving assembly line that drastically changed the automotive industry in its infancy. It's also known for its lucrative dividend, trudging through the financial crisis without a government bailout, and producing more vehicles in the U.S. than its Detroit rivals.

Unfortunately, Ford is also becoming known for something less desirable: recalls and warranty costs, and it's been a problem for years. Let's take a look at Ford's recent recall and how much it'll dent earnings.

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Recalls. Recalls everywhere.

Let's first make a note of something: Recalls are simply a part of business in the automotive industry. Typically, recalls don't tend to impact automotive stocks. In fact, when the vehicle is sold the automaker essentially estimates what the future cost of warranty coverage will be, and sets aside cash to handle such business. The problem is when warranty costs exceed, or greatly exceed, original estimates -- that's when excess costs can add up and weigh on the bottom line.

That said, Ford's recent recall for nearly 700,000 crossovers in the U.S., due to a fuel leak issue that could increase the risk of a fire, is the automaker's 90th recall already in 2025 -- a staggering number. Ford's 90 recalls so far this year are more than the next five manufacturers combined, and already set a full-year record for an individual automaker, breaking General Motors' previous record of 77 recalls in 2014 amid its massive ignition switch scandal, according to the National Highway Traffic Safety Administration (NHTSA).

To be fair, not all recalls are created equal, and issues that can be fixed with an over-the-air software update hardly cost the company a thing. On the flip side, when a vehicle has to be serviced, parts adjusted, or other manual labor is required, expenses can add up fast. So it's a bit unfair to draw any drastic conclusions solely from 90 recalls without knowing further details. Ford said 33 of its recalls so far in 2025 were related to software audits implemented in March, which should be far less costly than other recalls.

If you recall (no pun intended), last year during the second quarter warranty costs checked in $800 million higher compared to the prior year, which caused Ford to miss earnings and sent its stock lower. This recent recall shouldn't cause a similar result, for the most part.

Ford Mustang at assembly plant. Image source: Ford Motor Company.

What's the damage?

Ford said the recall remedy will cost the company roughly $570 million and will be included in the second-quarter earnings report as a "special item." For investors, this means that the increase in warranty expenses won't impact the company's adjusted earnings (which is what Wall Street estimates), adjusted earnings per share (EPS), or adjusted free cash flow.

In the early 2000s Ford's warranty payments compared to revenue was at a much lower percentage. That spiked to about 4% during last year's second quarter, a high number for automakers, when the company notoriously took a hit for higher warranty costs. Let's look at some longer trends. Here are Ford's warranty payments as a percentage of revenue over the past 20 years.

Data source: Ford SEC filings. Chart by author.

For a quick comparison, rival General Motors' warranty payments as a percentage of revenue checked in at 2.4% and 2.3% in 2024 and 2023, respectively.

Ford has stood firm that it's making significant quality improvements and noted that 2024 model years, during the first three months of service, were 30% better in quality compared to prior years.

Currently, Ford's warranty costs and quality issues are one of the biggest uncertainties facing investors. Ford is saying all the right things, and supposedly doing all the right things to fix quality, but so far investors have been left disappointed. It's certainly something to note in your Ford investment thesis, and recalls and warranty costs will be something to keep your eye on over the next 18 months as, hopefully, quality improvements filter through and recalls decline.

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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.