Being in the car business means constantly adjusting production to demand. If there are too few vehicles on dealer lots, buyers will take their business elsewhere. Too many means incentives have to be ramped up, reducing profits. The US car and light truck market was on fire last year as it powered its way to the best sales year ever. But 2016 has been a little less sunny for automakers. It’s not that sales are bad, it’s just that they aren’t quite as robust as they were last year.
The Ford F-150 pickup truck is the best selling vehicle in America and hugely important to the company’s profitability. The money Ford makes on one F-150 more than makes up for razor thin margins on some of its lesser vehicles, like the Fiesta. Even though F-150 sales are up 5.5% for the year so far, deliveries were down 2.6% in September. Dealers now have a 95 day supply on hand. That number is higher than Ford would like, so on Monday it announced it is cutting production.
It will shut down its truck assembly line in Kansas City for a week. Production at the Dearborn truck facility will continue without interruption. “During our second quarter financial call, we said we expected the overall retail industry to decline in the second half of the year from the same period last year. We also said to expect to see some production adjustments in the second half — this is one of them. We continue matching production to meet demand,” Ford spokeswoman Kelli Felker said.
Things are not great for the Escape crossover SUV at the moment either. The announcement on Monday said the Louisville assembly plant in Kentucky where the Escape and its twin, the Lincoln MKC, are manufactured will be shuttered for a few weeks. US sales of the Escape were down 12% in September.
Two plants in Mexico will also be affected. The factory in Hermosillo that makes the Ford Fusion and Lincoln MKZ sedans will close temporarily as will the facility in Cuautitlan that builds the Fiesta small sedan. In all, about 13,000 hourly workers will be laid off temporarily — 9,000 in the US and 4,000 in Mexico.
Anticipating customer demand and adjusting production levels accordingly is always a difficult task. The layoffs are a sign that the US market is cooling somewhat and that competition is growing at the same time. The US is still the second largest market for new cars in the world behind China and there is plenty of money to be made selling cars here. What should worry for Ford is any weakness in F-150 sales. That truck is the standard bearer for the company in the US market. If F-150 sales continue to decline, that could spell trouble for the company as a whole.
Source: Automotive News