Ford Death Watch 9: Capacity Utilization is Job One

Auto industry analysts have cast their beady eyes on The Blue Oval's third turnaround plan, and they don’t like what they see. Despite the fact that Billy and Alan and Mark have mashed the gas on Ford’s downsizing, there are ominous rumblings that the cuts aren’t deep enough. The assertion is almost as shocking as the cuts themselves. If asking all of your 75k union workers to piss off isn’t enough, if shuttering sixteen plants doesn’t cut the financial mustard, well, is there any end to this death spiral? Only the obvious one.

To review: Ford wants to jettison 30k members of the United Auto Workers (UAW). The analysts are saying it ain’t gonna happen dot bomb. FoMoCo’s assembly liners are younger than GM’s. Ford’s $140k lump sum payoff offer matches The General’s, but Ford workers’ relative immaturity means their pensions would be significantly smaller. Some analysts are predicting that Ford will fall short of its workers-out-the-door goal by 10k union members– raising the specter of yet more deposits into Ford’s infamous money-for-nothing jobs bank.

But that’s not what’s preoccupying prognosticating pundits. They’re concerned that Ford hasn’t named the final two factories they plan on shuttering. While this website has attributed Ford’s secrecy on this matter to political concerns (i.e. not pissing off friendly pols in whose districts the axe will fall), the rest of the crystal ball set see it differently. They consider the mystery a reflection of confusion, indecision and poor product planning (i.e. business as usual). In other words, if you don’t know what you need to build, you don’t know what not to build and where you shouldn’t be building it.

Addressing the topic in Automotive News, Catherine Madden, senior analyst at Global Insight, left her word mincer at home. "This indicates that Ford doesn't have a clear handle on what their product plan strategy is beyond 2008." Analyst Glenn Mercer was equally forthright: "The implication is that they haven't really figured this out yet, and if that's the case, one has to wonder what they have been doing for the past six months — or six years."

These number crunchers reckon that Ford’s production cutbacks will peg the company’s capacity utilization (actual output vs. potential output) at 84%. That would leave The Blue Oval Boys with excess production capacity equal to 500k units. That’s not good; Ford has to pay for this unused, unprofitable potential. Ford spokesman Oscar Suris’ counter: we’re getting there. In fact, if we hit 100% capacity utilization any sooner than our new new 2010 target date, we’ll have to surrender sales and/or invest in costly retooling.

Surrender sales, indeed. The industry analysts' calculations are based on Ford’s projection that it’ll capture 14% of next year’s domestic car market. If they don’t hit that target, even the 84% utilization figure will look like wishful thinking, and the automaker's profitability by '09 pledge will have as much credibility as cold fusion.

Obviously, it all comes down to product. According to Ford execs, the company’s got the goods to hold the fort, and maybe even fight a skirmish or two. They put tremendous stock in the $26k Edge. But back when the Mercury Montego (a badge engineered Ford 500) was launched, John Fitzpatrick predicted "We expect to conquest about 40 percent, meaning 40 percent of our Montego customers will be people who are outside the Ford family right now."

It didn't happen, but it must, and soon. In order to survive, Ford must lure non-Ford buyers into the fold. Although the media quite rightly focuses on the need for Ford to build gotta have products, the window of opportunity may already be shut. Think of it this way: Toyota, Honda, Nissan et al. didn’t establish segment dominance simply by building good products. They built good products in segments where American cars sucked. Now that the shoe is on the other foot, it’s worth noting that the so-called imports’ products don’t suck.

Perhaps there is merit to this whole “Bold Moves” thing. It seems pretty clear that Ford no longer has enough cash/time to make the incremental changes that could gradually win it enough business to stay in business. Maybe it’s time for the Blue Oval to do a Walt Disney: bet the whole company on a radical new product. Ford has a long history of creating exciting concept cars; cars that could legitimately be called segment busters. Who was it that said history is bunk? Screw the past. Build some weird shit. If we heard about some bold moves on the new product front, we’d have reason to hope. But we don’t, so we don’t.