Ford set to lose $600 million following Brexit currency hit

The Dollar Business Bureau

Britain’s June 2016 referendum is expected to drag down the US carmaker Ford’s 2017 earnings by as much as $600 million, a senior Ford executive told Reuters on Friday.

During the first quarter after the referendum, which led to a considerable slump in the sterling, currency hedges had shielded Ford from revenue slump. But in the first quarter of 2017, the global car manufacturer seems to be facing the brunt of a weaker pound.

"When Brexit happened we were fully hedged for the first quarter with the stronger pre-Brexit exchange rate. As we enter the rest of the year, especially the second half, we now face the full effects of the weaker sterling," Jim Farley, Ford’s Europe boss said in an interview.

Farley said the Pound's slump is the "only major headwind" Ford currently faces in Europe. Ford currently occupies a 12% market share in the UK market, making it one of the company’s biggest car markets in the world.

In the aftermath of Brexit, the pound continued to slide further, reducing a seven-year low compared to the euro in October 2016 and remaining almost one-fifth below its value in 2015.

Ford published 2016 results that showed a record $1.2 billion European profits. Farley said this year's global earnings would be much lower.

Ford manufactures engines at two UK plants for vehicles assembled in mainland Europe, with most them then sold back in Britain. A weaker pound dents the exchange value, and thus contracts the profitability with euro-denominated parts and production costs.

"We've all built our businesses on an integrated model between the UK and the EU. We would expect both entities to work for a free-trade arrangement like (the one) we have today," Farley said.

Ford employs 14,000 workers in Britain and 25,000 in Germany.