A class action lawsuit was filed against the Ford Motor Company (F) by Levi & Korsinsky on August 8, 2024. The plaintiffs (shareholders) alleged that they bought F stock at artificially inflated prices between April 27, 2022 and July 24, 2024 (Class Period) and are now seeking compensation for their financial losses. Investors who bought Ford stock during that period can click here to learn about joining the lawsuit.
Ford is an American legacy auto manufacturing company. The company’s operations span across the globe, with well-established manufacturing activities and solid logistics support.
Ford’s vehicles manufactured since 2022 had certain deficiencies in quality assurance, which led to the company booking higher warranty costs. The company’s misleading assessment of these warranty reserves and costs is at the heart of the complaint.
Ford’s Misleading Claims
According to the lawsuit, Ford and two of its senior officers (Individual Defendants) repeatedly made false and misleading public statements throughout the Class Period. Particularly, they are accused of omitting truthful information about certain deficiencies and warranty costs from SEC filings and related material.
For instance, at the beginning of the Class Period, the company estimated that its warranty costs could range up to $700 million in total. These were related to the “costs in excess of accruals for material field service actions and customer satisfaction actions.” The company reiterated the same estimate in quarterly reports and the annual report for Fiscal 2022 filed on February 3, 2023.
However, in a quarterly report filed on July 28, 2023, Ford increased the estimates for warranty costs to up to $1 billion in total. Furthermore, in a quarterly report filed on October 26, 2023, the company again raised its warranty cost estimates to up to $1.5 billion.
To summarize, subsequent events (discussed below) revealed that Ford and its executives were unable to effectively estimate the warranty costs, leading to a greater impact on its financials and disappointment among investors.
Plaintiffs’ Arguments
The plaintiffs maintain that the Defendants deceived investors by lying and withholding critical information about the company’s business practices and prospects during the Class Period. Importantly, the Defendants are accused of misleading investors about the fair estimates of warranty costs.
The information became clear after the market closed on July 24, 2024, when Ford released its Q2 FY24 results. The company cited an increase in warranty reserves and costs as a reason for lower profitability. Additionally, Ford lowered its full-year earnings outlook for the EV (electric vehicle) segment, Ford Blue, due to higher-than-anticipated warranty costs.
The news drove analysts and news agencies to project Q2 warranty and recall costs of $2.3 billion. This figure was $800 million more than Q1 FY24 costs and $700 million more than the amount in the prior-year period. On July 25, Ford shares fell 18.4% on the news.
To conclude, Ford allegedly misled investors about the company’s warranty reserves and costs, which impacted its bottom line. Year-to-date, F stock has declined 6.5%, causing damage to shareholder returns.
