Tough luck

'Ford tough' takes on whole new meaning

"Ford tough" is starting to mean something entirely new. The US automaker's first-quarter profit fell short of what analysts were expecting, in part because of repair costs. It is the latest sign of how the industry is struggling to keep cars reliable as models get fancier and product cycles shorten.

The mass production of complex machinery is becoming harder to do consistently. The proliferation of systems and features, including multiple airbags, traction control and touch-screen dashboards, can create as many inconveniences as they do comforts. Hybrid engines and other innovations, like Ford's new all-aluminum-bodied F-150 pickup, for example, layer on further engineering risks.

Ford's latest results are emblematic. It set aside an extra $400 million to fix vehicles still under warranty. The figure may pale in comparison to the $1.3 billion of expenses at General Motors for its ignition-switch recall, but it was nevertheless an unusually large adjustment for Ford. Strip it out, along with $100 million of weather-related costs, and the company would have delivered a bottom line that investors were anticipating. Instead, the company lost about $2 billion of market value.

Chief Executive Alan Mulally says Ford still expects to generate between $7 billion and $8 billion of pre-tax profit this year, as previously expected. That depends on a successful launch of the new F-150, as much a business challenge as it is a design one. And it is set to happen just as the highly regarded boss exits the company.

As it stands, GM is trading at about 10 times expected earnings for 2014 and Ford is on a multiple of about 11. Both fetch a premium to their biggest peers. Given the recent evidence of what it is costing to keep today's sophisticated cars and trucks up to par, though, a deeper complexity discount may be warranted.