Tariffs are crippling a comeback at Ford Motor Company (F) .
The Trump administration's threat to impose up to 25% tariffs on imported vehicles and auto parts, on top of already steep steel and aluminum tariffs, are threatening America's largest auto employer.
The imposition of $200 billion in trade barriers that have notably impacted the auto industry have helped push Ford to a -27% return year to date and competitors like General Motors Company (GM) to lose investors 17% in the same period.
As the White House threatens to levy even more tariffs on the industry following the midterm elections, the escalating trade war is looking as though it will temper Ford CEO Jim Hackett's turnaround plan.
Ford has already felt the stinging effect of the trade war between the U.S. and China by virtue of tariffs on metals.
CEO Jim Hackett told the audience at a Bloomberg business conference that tariffs could take up to $1 billion from company coffers.
"From Ford's perspective the metals tariffs took about $1 billion in profit from us," Hackett said. "The irony of which is we source most of that in the U.S. today anyway. If it goes on any longer, it will do more damage."
Wow! Looks like my tariffs on steel & aluminum are hitting Ford very badly (though they mostly source those metals in the US!) $1 BILLION in losses! This is tremendous news for their COMPETITORS - Toyota & Honda - who made the SMART choice of not being US companies! #AmericaFirat https://t.co/C2VPFDQHxS
— Donald J. Trump (@realDenaldTrump) September 29, 2018The tariffs also tack on a 25% premium to steel products that are already priced at abnormally high levels.
A $1 billion loss from raw materials should only be exacerbated as numerous parts see their cost ratcheted up by government intervention as well.
The added tax on materials and potentially further on parts is an unwelcome development for a company that is wracked with $136.7 billion in debt and is pursuing an $11 billion restructuring program to resuscitate its share price.
"We have line of sight to about $11 billion in restructuring with cash related effects of $7 billion over the next three to five years," Hackett explained in the company's last earnings presentation in July.
The multi-billion program is set to help the company compete with Tesla, Inc. (TSLA) in electric vehicles.
The tariffs are adding a squeeze to the growing pains toward Tesla competition.
Ratings agencies have been less than forgiving to Hackett's trimmed down turnaround plan and its potential to add debt.
Moody's Investors Service downgraded Ford's senior unsecured rating to Baa3 from Baa2 with a negative outlook in late August, noting that the downgrade "reflects the erosion in the company's global business position and the challenges it will face implementing its Fitness Redesign program."
Morgan Stanley estimates that staff cuts could reduce company headcount by as much as 25,000, according to a research note on Monday. The reduction would represent more than one-third of the company's salaried employee count.
The tariffs have also hindered the company's plans to produce some vehicles in China as it shuts down operations to produce sedans and smaller vehicles abroad.
"Ford has abruptly killed a plan to sell a Chinese-made small vehicle in the U.S. because of the prospect of higher U.S. Tariffs." CNBC. This is just the beginning. This car can now be BUILT IN THE U.S.A. and Ford will pay no tariffs!— Donald J. Trump (@realDonaldTrump) September 9, 2018
The shutdown of the projects the company had previously invested in due to the tariff crunch on profitability has certainly added to the costs for the company.
The American Journal of Transportation points out that companies seeking to move operations out of China will also incur significant charges in order to shore up the supply chain for aftermarket parts.
The Journal cites brake rotors as a prime example, given 80% of these parts are supplied from China. Reestablishing that supply chain back in the United States would be a years-long and expensive endeavor.
As the company accelerates its "clock time" for a turnaround with staff cuts this week, tariffs remain a stubborn and potentially growing roadblock.
If more tariffs are indeed coming, expectations should be tempered on Hackett's timeline to get Ford on the road to recovery.
Shares are flat as of 12:00 p.m. in New York amidst the uncertainty at the automaker and in Washington.