Ford Is Fixing 1 of Its Biggest Problems. Here's the Proof.

Finally, Ford Motor Company (NYSE: F) investors have some good news to celebrate. After a year that included massive losses from its electric vehicle (EV) division, struggles in China, and high warranty costs weighing down earnings, Ford finally snapped its streak of leading the U.S. auto industry in recalls -- and it's a bigger deal than you might think.

Let's take a look at some proof showing Ford is fixing one of its biggest problems.

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By the numbers

Let's start with the easy numbers before things get a little more complicated. When it comes to the number of recalls, Stellantis dethroned Ford as the automaker with the highest count at 71 recalls in 2024. Ford was still close behind in second place with 67 recalls, with BMW, General Motors, and Mercedes-Benz rounding out the top five with 36, 32, and 28 recalls, respectively.

Looking at the numbers a different way, Tesla's sales may have pumped the brakes in 2024 but its number of vehicles recalled jumped. Tesla had 16 recalls in 2024 but dethroned Ford for the highest number of vehicles recalled at over 5.1 million vehicles. Now, to be fair, while Tesla may have a high number of recalls it's important to note a large chunk of those were resolved remotely with over-the-air (OTA) updates. In fact, less than 1% of Tesla recalls required a dealership visit, while 99% of Ford's recalls required a visit to a Ford dealership.

Despite the difference in recalls needing a dealership trip or not, the head honchos at Ford are likely having a small celebration after making improvements on quality and seeing some results. Ford's 67 recalls covered nearly 4.8 million vehicles, which was an improvement over its 2023 mark of 5.7 million vehicles, and far ahead of a rough 2022 when it issued recalls for more than 8.7 million vehicles.

Taking things one step further, Ford also jumped 14 spots from No. 23 to No. 9 in J.D. Power's 2024 U.S. Initial Quality Study. "We are making a lot of progress on quality and customers with our latest vehicles are benefiting from it," said Jim Baumbick, Ford's vice president of product development, operations, and quality, in a press release. "We have more work to do, as our ambition is to have best-in-class quality and we won't be satisfied until we achieve and sustain it."

Why it's a big deal

According to Ford, the Detroit icon also has best-in-class launch quality, which is a key indicator of future warranty performance. That's a huge factor for investors to note, because during the second quarter Ford's warranty costs increased roughly $800 million from the first quarter, up to over $2 billion, which weighed on the company's bottom-line results.

Ford's warranty costs during the second quarter were about 4% of sales, which is a high figure for automakers. For comparison, according to Mike Ward of Freedom Capital Markets, Ford's warranty averaged 1.6% between 2011 and 2019, and 2.9% between the beginning of 2022 before spiking to the previously mentioned 4% during the second quarter of 2024.

What it all means

Ford has truly doubled down on quality improvements over the past couple of years and has made real progress, though there's still room for much improvement. The problem is these fixes won't instantly impact warranty costs; most of those costs are from older model years and it will take up to 18 months for newer models to work into the vehicle market and positively impact recall results and warranty costs.

Ultimately, this is just a little good news for Ford investors to digest as the company moves in the right direction on quality, recalls, and warranty costs.

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Daniel Miller has positions in Ford Motor Company and General Motors. The Motley Fool has positions in and recommends Tesla. The Motley Fool recommends General Motors and Stellantis and recommends the following options: long January 2025 $25 calls on General Motors. The Motley Fool has a disclosure policy.