Ford Recalls New Escape Crossovers - Analyst Blog


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Ford Motor Co. ( F ) plans to recall 8,266 units of its recently launched Escape compact sport-utility vehicles (SUVs) in order to fix their improperly installed carpet padding. The 2013 model year vehicles were manufactured between March 8 and June 7 this year at the company's retooled Louisville Assembly plant.

According to National Highway Traffic Safety Administration (NHTSA), the carpet pads in the vehicles are misplaced and can get in the way of a driver's foot while breaking causing braking failures, thereby increasing stopping distances and the risk of crashes. Ford dealers have decided to remove the carpet padding and replace a console trim panel at free of cost when the vehicles will be recalled on July 23.

The redesigned Escape SUVs are the company's second-best selling vehicle after F-Series trucks. Last month, it was the sixth best-selling vehicle in the U.S. Sales during the month soared 28% on a year-over-year basis to 28,500 units.

In May, Ford recalled 27,000 units of Windstar minivans from Virginia, which is a part of its larger recall of more than 600,000 minivans in the U.S. and Canada in 23 states on August 2010. The defect was caused by salt that can cause the axles to rust, crack and even break, leading to loss of vehicle control.

Automotive safety recalls were brought into focus by media after Toyota Motors ' ( TM ) announcement of the largest-ever global recall of 3.8 million vehicles in September 2009, triggered by a high-speed crash that killed 4 members of a family.

Later on, a string of recalls has led Toyota to face numerous personal injury and wrongful death lawsuits in federal courts. The Transportation Department of U.S. also imposed a fine of $48.4 million on the company due to late recall of millions of defective vehicles.

Ford, a Zacks #4 Rank (Sell) stock, posted a sharp 20% fall in profits to $1.6 billion in the first quarter of the year from $2.0 billion in the same quarter of 2011. On a per share basis, profits ebbed 17% to 39 cents from 47 cents in the first quarter of 2011. Nevertheless, it was higher than the Zacks Consensus Estimate of 35 cents.

The automaker has attributed the decrease in profits to higher tax expense, lower operating results and higher charges emanating from buyouts of hourly workers in the U.S. as part of its UAW agreement in 2011.

The company's profits drastically fell in all its operating regions, except North America. In fact, it recorded a loss in Europe and Asia-Pacific-Africa compared with a profit in the comparable quarter of 2011.

Total revenue in the quarter slipped 2% to $32.4 billion, barely surpassing the Zacks Consensus Estimate of $32.0 billion. The fall in revenues was attributable to lower wholesale volumes in Europe and Asia, partially offset by higher volumes in North America and South America.

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