The news has mostly been good of late for Ford (NYSE:F). Sales have consistently outperformed expectations while upgrades to popular models made winning formulas even better. That makes news of a recently filed lawsuit troubling for the number-two U.S. automaker. With recalls and bad press heading its way, will Ford be able to swerve away from this bump in the road?
Details of the report shed light on the problem. Apparently, acceleration issues — yes, similar to the recent billion-dollar fiasco of Toyota (NYSE:TM) – have led customers to believe their cars are worth considerably less than they paid for them. The class-action suit alleges not only widespread problems across numerous Ford makes and models in 14 states; most damningly, it claims that Ford knew about the defects and nonetheless rolled out their cars, hoping for the best.
Ford mouthpieces swiftly refuted the report and pointed to work they’ve done with the National Highway Traffic Safety Administration to resolve the issue with its cars. Citing superior credibility in the NHTSA findings to the “work done by personal injury lawyers and their paid experts,” Ford aggressively countered the suit’s findings. For investors looking for stock to keep its value, this strategy has potential to either backfire or make the company look stronger.
If Ford indeed has a widespread problem on its hands, it could risk stagnation after the automaker was poised for growth. Its profit margins beat those of rival General Motors (NYSE:GM) and the release of fuel-efficient SUVs and industry-leading hybrids made for good press and sales. As Toyota learned, a negative public image could erase much of that goodwill overnight.
Ford could potentially get past this lawsuit by proving it had addressed the problem and settling on classes where the vehicles were clearly sold for more than their value. However, a public relations scandal involving a company-wide cover-up would be disastrous. Shareholders should hope the latter doesn’t prove to be true. Meanwhile, investors considering adding Ford to a portfolio will want to see how the case unfolds. Another lesson from Toyota: when facing recalls and defects, it doesn’t mean the end of the world.
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