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Why Ford Stock Is Roaring Higher Today

What happened

Shares of Ford Motor Company (NYSE: F) were trading higher on Tuesday morning, after Ford announced the hiring of a new chief marketing officer -- and after Reuters reported that Ford's new CEO is moving aggressively to reduce rising warranty costs.

As of 10:45 a.m. EST, Ford's shares were up about 6.9% from Monday's closing price.

So what

Reuters reported that new Ford CEO Jim Farley has begun an initiative to reduce so-called warranty costs, the costs that Ford incurs when vehicles are repaired under warranty or in conjunction with a recall.

Ford's warranty claims have risen by almost $2 billion since 2017, while rivals including General Motors (NYSE: GM) have had more success improving quality to reduce claims. That has cut into Ford's margins, which have trailed GM's in recent quarters.

Last year's launch of Ford's all-new Explorer was plagued with expensive problems. With several critical launches scheduled for 2021, including an all-new F-150 pickup, new CEO Jim Farley is moving aggressively to avoid repeating that experience. Image source: Ford Motor Company.

As part of the cost-reduction effort, according to the report, Ford has told its suppliers that it will charge them up front for half the cost of a warranty-related problem. While Ford's supplier contracts have long allowed for such debits, Ford hasn't used those provisions in the past.

Now what

Separately, Ford announced the hiring of a new chief marketing officer. Suzy Deering, currently the chief marketing officer at eBay, will join Ford in that role on Jan. 4. She replaces Joy Falotico, who has relinquished her role as CMO to focus on her other role as president of the Lincoln luxury brand.

So why is Ford's stock up today? I think auto investors are digesting these developments and getting the sense that Farley is moving quickly and effectively to improve Ford's financial condition. That, plus growing optimism about the effects of COVID-19 vaccines and the incoming Biden administration on the economy, is likely drawing investors back to the Blue Oval's shares.

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John Rosevear owns shares of Ford and General Motors. The Motley Fool recommends eBay and recommends the following options: long January 2021 $18 calls on eBay and short January 2021 $37 calls on eBay. The Motley Fool has a disclosure policy.


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