Ford Stock Down On Mileage Rating Cut - Analyst Blog

The share price of Ford Motor Co. F declined 2.2% to $16.52 on Jun 12, after the automaker announced that it has slashed the fuel economy ratings of its hybrid and plug-in hybrid vehicles of model years 2013 and 2014, along with the model year 2014 Fiestas. The automaker came across an error in the fuel economy ratings of certain vehicles during its internal testing and immediately informed the U.S. Environmental Protection Agency (EPA).

Ford works toward delivering fuel efficient vehicles. The automaker has apologized and intends to provide goodwill payments to 200,000 U.S. customers affected by this error. The goodwill payment will be the difference between the costs of the two fuel economy standards. Ford will also contact U.S. fleet owners and the affected international customers.

Ford's fuel economy testing involves many factors. This rating error was due to a miscalculation of the Total Road Load Horsepower or TRLHP factor. After executing further tests, Ford confirmed an error in the correlation between wind tunnel results in the TRLHP model. The automaker further clarified that the calculation slip was due to the difference in correlation between computer-based models and real vehicles.

Ford also revealed that the revised fuel economy labels will be given to dealers within the next six days. In the meantime, dealers might face problem in selling vehicles.

This is not the first time that Ford has slashed the fuel economy rating of its cars. In Aug 2013, Ford reduced the mileage rating of C-Max hybrid to 43 miles per gallon from 47. Following this reduction, C-Max hybrid's mileage rating faced a further cut to 40 miles per gallon from 43. As a result, Ford had to pay $550 to the C-Max hybrid owners and $325 was paid to the lessees.

This fuel economy rating cut should pose significant challenges to Ford. Previously, Ford had eight 2013 models with mileage ratings of 40 or better. However, the number has contracted to five following several ratings cuts, like the deterioration of the Lincoln MKZ rating to 38 from 45 and that of C-Max Energi and Fusion Energi to 38.

Ford currently carries a Zacks Rank #3 (Hold). Fox Factory Holding Corp FOXF, Gentherm Incorporated THRM and Tower International, Inc. TOWR are better-ranked automobile stocks. All these stocks carry a Zacks Rank #1 (Strong Buy).

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