Ford has axed almost a quarter of its fourth quarter North American production as it accelerates the pace of its Way Forward turnaround.
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The company said it is reducing North American fourth-quarter production by 21% – or 168,000 units – compared with the fourth quarter a year ago. The revised plan also reduces the company’s previously announced third-quarter plan by 20,000 units.
Bill Ford, the company’s chairman and CEO, outlined the decision to cut production in a note to employees, explaining the decision is part of broader efforts to accelerate the company’s North American turnaround and saying full details of additional actions will be announced in September.
“We know this decision will have a dramatic impact on our employees, as well as our suppliers,” Bill Ford told employees. “This is, however, the right call for our customers, our dealers and our long-term future.”
For full-year 2006, Ford now plans to produce 3.048m vehicles at its North American assembly plants – 1.134m cars and 1.914m trucks – a 9% reduction from 2005.
The revised production plan is expected to sharply reduce the supply of several models and reduce pressure on sales incentives and dealer inventory carrying costs. The plan also reflects expectations for lower industry sales of light trucks and truck-based sport utility vehicles, as high petrol prices are expected to continue to encourage demand for more fuel-efficient passenger cars and crossovers.
Mark Fields, executive vice president and Ford’s president of The Americas, said the “tough-but-important” reduction in production plans underscores the seriousness with which the company is approaching its North American turnaround.
“We are basing our business plans on the customer, and we are determined to match production and inventories with consumer demand,” Fields said. “In doing so, we’ll reduce incentive spending and inventory carrying costs for our dealers – with the intent to improve residual values for our customers and stabilise operating patterns for our plants and our suppliers.”
“Ford is grappling with its fixed cost structure and the decline in sales of its most profitable vehicles, large pick-ups and sports-utility vehicles (SUVs), in the wake of sustained high fuel prices. It is also faced with the uncomfortable reality that its model and platform strategy to bring about a “product-led revival” has not been the success it needed to be in some areas,” said Global Insight analyst Paul Newton in a research note.
“In order to correct these issues, Ford must attempt to address them with great vigour. While efforts to tackle its cost structure are under way and an acceleration is imminent, its attempts to address its model platform programme are more problematic due to the sheer cost and time-frame involved.
“Ford’s executives are clearly aware of the issues, and Mark Fields has admitted that the ‘Way Forward’ plan needs to be adjusted to the rapidly changing operating environment.”
The previously announced third-quarter plan was 670,000 vehicles (255,000 cars and 415,000 trucks).
The new production plan will result in downtime at several assembly plants between now and the end of the year, including: St. Thomas, Ontario (Ford Crown Victoria and Mercury Grand Marquis), Chicago (Ford Five Hundred and Freestyle and Mercury Montego), Wixom, Michigan (Lincoln Town Car), Louisville, Kentucky. (Ford Explorer and Mercury Mountaineer), Michigan Truck in Wayne, Michigan (Ford Expedition and Lincoln Navigator), Twin Cities, Minnesota (Ford Ranger) and all F-Series truck plants (Kansas City, Missouri; Norfolk, Virginia, Dearborn and Kentucky Truck in Louisville).
The following plants are expected to operate on straight time or overtime based on consumer demand: Hermosillo, Mexico (Ford Fusion, Mercury Milan and Lincoln MKZ), AutoAlliance International in Flat Rock, Michigan (Ford Mustang), Oakville, Ontario (Ford Edge, Lincoln MKX and Ford Freestar), Wayne, Michigan (Ford Focus), Kansas City, Missouri (Ford Escape and Mercury Mariner), Ohio Assembly in Avon Lake, Ohio (Ford Econoline) and Atlanta (Ford Taurus).
