Ford Death Watch 9: Capacity Utilization is Job One

Robert Farago
by Robert Farago
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.

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  • Htn Htn on Sep 21, 2006

    Quote: The company has too many layers, the company is too bureaucratic, and it takes too long to get things done.” This I just do not understand. It’s simple, or should be if you’re a CEO/Chariman named Ford — just keep firing executives until the ones left are giving you their full attention and support, with a keen sense of urgency. What’s hard about that? Answer Because the one that is left will be the one that told you what you want to hear. Howard

  • Ricky Spanish Ricky Spanish on Sep 24, 2006

    I would LOVE to see Ford build some weird shit. Lets face it - Toyota doesn't build a viable sports car anymore - Ford could easily fill that Niche with an affordable, practical, fun (meaning under 3000 lbs with a high revving inline 4), RWD car that the ricer kids could buy and drift into fire hydrants.

  • Funky D I despise Google for a whole host of reasons. So why on earth would I willing spend a large amount of $ on a car that will force Google spyware on me.The only connectivity to the world I will put up with is through my phone, which at least gives me the option of turning it off or disconnecting it from the car should I choose to.No CarPlay, no sale.
  • William I think it's important to understand the factors that made GM as big as it once was and would like to be today. Let's roll back to 1965, or even before that. GM was the biggest of the Big Three. It's main competition was Ford and Chrysler, as well as it's own 5 brands competing with themselves. The import competition was all but non existent. Volkswagen was the most popular imported cars at the time. So GM had its successful 5 brands, and very little competition compared to today's market. GM was big, huge in fact. It was diversified into many other lines of business, from trains to information data processing (EDS). Again GM was huge. But being huge didn't make it better. There are many examples of GM not building the best cars they could, it's no surprise that they were building cars to maximize their profits, not to be the best built cars on the road, the closest brand to achieve that status was Cadillac. Anyone who owned a Cadillac knew it could have been a much higher level of quality than it was. It had a higher level of engineering and design features compared to it's competition. But as my Godfather used to say "how good is good?" Being as good as your competitors, isn't being as good as you could be. So, today GM does not hold 50% of the automotive market as it once did, and because of a multitude of reasons it never will again. No matter how much it improves it's quality, market value and dealer network, based on competition alone it can't have a 50% market share again. It has only 3 of its original 5 brands, and there are too many strong competitors taking pieces of the market share. So that says it's playing in a different game, therfore there's a whole new normal to use as a baseline than before. GM has to continue downsizing to fit into today's market. It can still be big, but in a different game and scale. The new normal will never be the same scale it once was as compared to the now "worlds" automotive industry. Just like how the US railroad industry had to reinvent its self to meet the changing transportation industry, and IBM has had to reinvent its self to play in the ever changing Information Technology industry it finds it's self in. IBM was once the industry leader, now it has to scale it's self down to remain in the industry it created. GM is in the same place that the railroads, IBM and other big companies like AT&T and Standard Oil have found themselves in. It seems like being the industry leader is always followed by having to reinvent it's self to just remain viable. It's part of the business cycle. GM, it's time you accept your fate, not dead, but not huge either.
  • Tassos The Euro spec Taurus is the US spec Ford FUSION.Very few buyers care to see it here. FOrd has stopped making the Fusion long agoWake us when you have some interesting news to report.
  • Marvin Im a current owner of a 2012 Golf R 2 Door with 5 grand on the odometer . Fun car to drive ! It's my summer cruiser. 2006 GLI with 33,000 . The R can be money pit if service by the dealership. For both cars I deal with Foreign car specialist , non union shop but they know their stuff !!! From what I gather the newer R's 22,23' too many electronic controls on the screen, plus the 12 is the last of the of the trouble free ones and fun to drive no on screen electronics Maze !
  • VoGhost It's very odd to me to see so many commenters reflexively attack an American company like this. Maybe they will be able to find a job with BYD or Vinfast.