Ford Motor Co. said today that it will again cut truck production and is delaying the launch of its new F-150 pickup as consumer demand shifts to more fuel-efficient cars and crossovers.
In addition, the Dearborn automaker warned that this year's financial results will be worse than last year's when the automaker lost $2.7 billion and said its consumer finance arm, Ford Credit, will swing to an unprecedented loss because of the weak market for used trucks and sport utility vehicles.
CEO Alan Mulally told The Detroit News that the U.S. automobile market “continues to deteriorate,” even as the shift from pickups and SUVs to cars and crossovers accelerates.
“It's the economy, it's fuel prices, it's consumer confidence — it's everything,” he said.
June is shaping up to be one of the worst months in recent memory for auto sales. Many consumers are putting off big purchases, worried about the falling value of their homes or job insecurity. Those buying vehicles are increasingly opting for smaller, more fuel-efficient models. Supplies of these cars and crossovers are low, and even Japanese automakers are having a tough time keeping up.
After an unexpectedly weak start to the month, several auto analysts and forecasters are predicting a huge drop in the annualized selling rate for June to as low as 12.5 million vehicles — a figure that would have been unthinkable just a few months ago.
The last time annual car and truck sales came in below 13 million was in 1992.
Today, Ford said it now expects U.S. industry volume in 2008 — including medium and heavy vehicles — to be between 14.7 million and 15.2 million units, compared with the previous assumption of 15 million to 15.4 million units.
In response, Ford is cutting its production for the second time in a month.
The company also will delay its introduction of the new F-150 by two months, citing “the industry-wide slowdown in the U.S. truck market and the need to sell down dealer inventory of the current model.”
The new F-150 now will go on sale in late fall.
The automaker said today that it now plans to produce 475,000 vehicles in the third quarter, a reduction of 50,000 vehicles from previously announced plans and a decline of 25 percent compared with the third quarter of 2007. In the fourth quarter, it plans to produce 550,000 to 590,000 vehicles, a reduction of 40,000 from previously announced plans and a decline of 8 percent to 14 percent compared with the same period last year.
As a result, Ford announced a series of plant actions today:
–Production of the 2009 F-150 now will begin in August at Kansas City Assembly Plant and in September at Dearborn Truck Plant. One shift will be eliminated at both Kansas City (which will be reduced from two to one) and Dearborn (which will be reduced from three to two). In addition, Dearborn Truck will be idled most of the third quarter.
–Michigan Truck Plant, which produces the Ford Expedition and Lincoln Navigator, will be idled for nine consecutive weeks beginning the week of June 23, in line with demand for the company's full-size SUVs.
–One shift of production will be eliminated at Louisville Assembly Plant, which produces the Ford Explorer and Mercury Mountaineer, in the third quarter.
–The line speed will be reduced at Kentucky Truck Plant for large pickups in the third quarter. This factory makes Ford's Super Duty pickups.
–The line speed will be reduced at Chicago Assembly, which assembles the Ford Taurus and Taurus X, as well as the Mercury Sable, in the third quarter.
–Production will wind down at Cuautitlan Assembly Plant in Mexico by the end of 2008. The plant, which now produces large pickups, will be retooled for production of the new Fiesta small car for North America beginning in early 2010.
At the same time, Ford is taking additional steps to boost production of smaller cars and crossovers:
–As previously announced, Oakville Assembly will add a third shift for production of the Ford Edge, Lincoln MKX and all-new 2009 Ford Flex crossovers.
–Kansas City Assembly Plant's line that produces the Ford Escape, Escape Hybrid and Mercury Mariner and Mariner Hybrid small utility vehicles will add a third shift.
–Wayne Assembly Plant's body and paint shops will add a third shift, and the line-speed will be increased for final assembly production of the Ford Focus compact.
The automaker said production at stamping, engine and transmission plants is being adjusted in line with the changes in assembly capacity.
“We view the move to smaller, more fuel-efficient vehicles as permanent, and we are responding to customer demand,” Mulally said in a statement. “In the near term, we are adjusting production to the actual demand — increasing small cars and crossovers and reducing large trucks and SUVs. For the long term, we are moving fast to introduce more small cars, crossovers and fuel-efficient powertrains — including more hybrids — and we will adjust our manufacturing facilities to match our updated product lineup.”
To that end, Ford finally confirmed today that it will produce the next-generation European Focus in North America, beginning in late 2010. Both four-door and five-door versions of the new compact car will be sold in the United States. It will feature Ford's new EcoBoost engine technology and a new six-speed transmission that promises higher performance and better fuel economy. As The News first reported, the new model will share a common architecture with the new Mazda3.
“We remain absolutely committed to accelerating the development of the new products that customers want and value,” Mulally said. “We sell some of the best smaller cars and utility vehicles in the world in our profitable European and South American operations, and our plan is to introduce these same vehicles in North America as quickly as possible. This is an integral part of our plan to leverage our global assets and achieve our goal of profitable growth.”
But even with these actions, Ford said it is now clear that 2008 will be a tough year for the automaker and the industry.
Last month, Mulally said economic and market conditions were forcing Ford to abandon its long-stated goal of restoring profitability in 2009.
Today, the company said “it now is clear that 2008 pre-tax automotive results will be worse than 2007, cash outflows to fund operating losses and restructuring will be greater than previous guidance and, unless the economy improves, it will be difficult for Ford to break even companywide on a pre-tax basis in 2009, excluding special items. “
Ford said it is still on track to reduce operating costs by about $5 billion by the end of 2008, but said declining sales and higher commodity costs will offset these gains.
Moreover, the company said Ford Credit now will incur a pre-tax loss this year, primarily due to further weakness in large truck and SUV auction values. Ford Credit has long been a source of reliable profits for its parent company, but Ford Credit is no longer planning a distribution payment to Ford in 2008.
“Despite improving performance over the past few months, auto credit is likely to be pressured by the weakening used car market. Specifically, we expect deteriorating residual values of lease vehicles to be lower than original expectations, which could significantly impact loss rates for recent vintages,” analyst Brian Johnson of Lehman Brothers said prior to Ford's announcement. “In line with the accelerating mix shift away from traditional trucks seen in the new vehicle market, large SUVs and pickups have seen the greatest price decline in the used vehicle market. With large pickups and SUVs accounting for 40 — 50 percent of light truck sales, we believe Ford and GM's financial arms may need to write down $1.1 billion and $1.5 billion respectively.”
Product analyst Jim Hall of 2953 Analytics in Birmingham said Ford is taking appropriate actions to address a bad situation.
“I have a feeling there is a lot of dealer input in this. Trucks aren't moving, and dealers are telling them that,” he said, adding that similar moves could come in the next couple of weeks from other automakers. “It's not out of the question at all.”
