Ford Trucks It Up. Again. But Small Cars Still Rock

by John Horner

November 3rd, 2008 8:11 AM

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ford trucks it up again but small cars still rock

Is the F150 a Phoenix rising from the ashes or an Icarus once again flying too close to the sun? The Wall Street Journal tell us Ford is betting on a revival of the living dead by “rehiring 1,000 workers to build the company’s 2009 F-150 pickup” at the long suffering Dearborn Truck plant. Perhaps this is an attempt to spin the company’s upcoming November 7th epic horror film release, um I mean quarterly financial announcement. Said quarterly results are going to be horrifically bad. Barn-burner October clearances sales brought truck’s US market share back up over 13.9 percent, a stunning recovery from the sub 9 percent range of this summer and back on track with the rates of this time last year. But those trucks were blown out the door at prices which don’t make money. A horrible economic environment, reduced total sales and high fixed costs mean rivers of red ink. The only good news: Ford’s end of October truck inventories were down from June’s 130k to a skinny 50k. As long ago as August, Edmunds was reporting that buyer research behavior was already moving back away from small cars. Likewise, GM recently cancelled Saturday overtime plans at the Lordstown Cobalt plant. Gas prices are back down in the mid $2s, thanks for a record monthly drop in oil prices. Ford is betting that at least some Americans will revert to type and get themselves a new pickup, even if there isn’t a double scoop of cash on the hood. Meanwhile, FoMoCo CEO Alan Mulally remains committed to small cars…

Automotive News [sub] reports that Big Al will stay the course, continuing plans to get Ford’s small car lineup into shape. In other news, supertanker still needs two miles to make a turn. “Fuel ‘prices are going to stay relatively higher, even though they’re down right now,’ Mulally told Automotive News last week. [ED: What’s the rush?] ‘The most important thing we can do is have a full complement of small and medium-sized cars and utilities that complement our larger vehicles.'”

Complement as in make money? “The Ford CEO must find a way to achieve a decent profit margin on small cars. It will be tough to replace the $8,000 to $10,000-plus profit margins on big pickups and SUVs. ‘It takes a while to fill in that loss of revenue on the larger vehicles with the full portfolio of cars,’ Mulally said. ‘But over time, our plan is to make money on them and make a reasonable return.'” That said, Big Al wouldn’t predict/set a date for a return to profitability. For now, survival’s about as good as it gets.

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2 of 4 comments

Kazoomaloo on Nov 03, 2008

I think this might go well for Ford; without a doubt the new F150 will be a great truck, and with Dodge going away, those Ram buyers are going to have to look somewhere else. If Chrysler falls, Ford stands to gain a good number of buyers for this great new truck.

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RobertSD on Nov 03, 2008

Think of it as a marketshare game. Ford had capacity for about 300k F-150s on three shifts - maybe 350k with overtime. This year, trucks are going to have their lowest industry share in a long time and the F-150 will still move 350k units. If total industry sales are flat next year (and I predict they will be close), and the full-size truck market will ~1 point higher marketshare AND Ford has a new F-150, which they expect to at least maintain their share of the half-ton pie, then they will need more than 350k units. They will probably need 400k, maybe 450k if they see ok, if weak, commercial demand. And may need more if in tough economic times, commercial fleets flee the HD trucks for half-tons that are almost as capable for most jobs. And that level of demand requires a new shift. As you point out, they've made their inventories really lean with days supply probably around 60 days, and as long as velocity of sales matches or slightly lags velocity of production from time to time, they've matched their capacity. As for profits on small cars versus profits on big SUVs... Ford used to lose money on every small car it built and most mid-size cars. The Focus and Fusion are pretty close to break-even. That's like a $2k-$3k per vehicle swing. You don't need them to be insanely profitable, you need them to make $500-$1000 per vehicle. If every car sold around the world made just $1,000 on average, Ford would make ~$6B. It's not about huge profits on small cars, it's about consistent profits on all cars.

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