Ford Lowers Profit Guidance as it Expands Door-Latch Recall

Ford Lowers Profit Guidance as it Expands Door-Latch Recall

Ford Motor Co.’s outlook hit another speed bump Thursday, with the company saying hefty charges for an expanded safety recall will reduce this year’s operating profit guidance by 6%.

The Dearborn, Mich., auto maker in July flagged Brexit headwinds and an expected slowdown in its core U.S. market as reasons for concerns about 2016’s second half. Although benefiting from strong U.S. sales for pickups and sport utilities, recovery in Europe and momentum in Asia, Ford has been less bullish than rival General Motors Co.on near-term prospects for the industry.

Ford cut its profit outlook after announcing it would take a $640 million charge in the third quarter to double its recall of vehicles with faulty door latches. The No. 2 U.S. auto maker said it now expects adjusted pretax profit of about $10.2 billion, according to a regulatory filing, down from its previous guidance of at least $10.8 billion.

The company said Thursday it would recall an additional 1.5 million vehicles at the request of the National Highway Traffic Safety Administration, bringing the total to 2.4 million vehicles. Ford said there had been one reported accident and three reported injuries that may be related.

Shares of Ford were flat in afternoon trading.

The $640 million safety-recall charge comes as Ford is scrambling to keep pace with rivals investing heavily in autonomous-car and electric-vehicle development.

Ford reported a 9% drop in profits in the second quarter and Chief Financial Officer Bob Shanks has warned the company will face a tougher second half.

Slowing U.S. retail sales, a weaker Chinese auto market and higher costs related to the roll out of a new heavy-duty pickup truck this fall will hurt the company’s prospects for meeting its 2016 guidance, Mr. Shanks said in July.

Auto makers are also facing greater scrutiny by U.S. regulators of their safety-recall practices, resulting in the industry recalling a record 51.26 million vehicles in the U.S. last year. The volume of safety campaigns has weighed on auto makers’ profitability in recent years.

In 2014, Ford took a $500 million charge to recall 850,000 vehicles for air bag problems—a cost that forced the company to trim its profit-margin outlook for that year.

Last year, Fiat Chrysler Automobiles NV posted a third-quarter loss after taking a $667 million after-tax charge, mainly for future recall costs.

General Motors Co. spent billions to resolve its massive ignition-switch recall, including paying $900 million to settle with the Justice Department and another $600 million to compensate victims through a fund established by the company.

GM doesn’t break out its recall costs as a separate charge, viewing the expense instead as a reoccurring item reflected in the company’s operating earnings.

The recall will fix a spring in the side-door latch that could fracture and prevent the door from closing properly, causing it to open while driving. The campaign mostly covers newer models, including the 2013-2015 Escape, 2012-2015 Ford Focus and 2015 Ford Mustang.

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