“We continue to match production with demand”: Ford
It’s been years since we’ve heard about production cuts by automakers, but here they come.
After a record-breaking 2015, the hot air is audibly hissing out of the auto industry. September sales were down 0.5% from a year ago. Year-to-date sales were about flat. Some individual models got clobbered. Inventories are piling up on dealer lots. Automakers lavished incentives on the market. Nothing worked.
Yet, auto production in September had jumped 7.3% year-over-year, according to the industrial production report this morning. In my article earlier today on this phenomenon [Is this Why US Industrial Companies Don’t Invest?], I explained: “Something has to give: either a miraculous jump in sales or a cut in production.”
The digital ink wasn’t even dry when we got the answer from the horse’s mouth. And no, sales hadn’t miraculously jumped. Instead, production is going to get cut.
The harbinger that auto sales and swelling inventories would hit production and manufacturing came on October 11, when Ford announced that it would halt production of Mustangs for a week at its Flat Rock Assembly Plant.
“We continue to match production with demand,” spokeswoman Kelli Felker told the Detroit News.
Mustang sales had plunged 32% in the month from a year ago, despite about $2,700 in incentives per deal. Year-to-date sales were down 9.3%. Mustang inventories on dealer lots at the end of September had ballooned to 89 days’ supply – so let’s face it, the dreadful 90 days – when 60 days is more than enough. That’s nearly 50% overstocked!
But no big deal, it was just a week, and it was just the Mustang, not Ford’s lifeblood, such as high-profit-margin F-series trucks – the F-150 being the best-selling model in the US; or SUVs, such as the compact Escape, Ford’s second-best selling vehicle; or even cars, such as the Fusion, Ford’s third best-selling vehicle.
But sales of F-series pickups had fallen 3% in September from a year ago, with inventories ballooning to 95 days’ supply, according to Automotive News. Overall light truck sales, including SUVs, were down 2.9%, according to Motor Intelligence.
So this evening, the inevitable happened: Ford announced that it will shut down production of its F-150 assembly plant in Kansas City for a week, though the Dearborn Truck Plan in Michigan would continue production.
And there’s more: Ford will also shut down production of the Escape, whose sales had plunged 12% year-over-year in September, and of another SUV, the Lincoln MKC, at its Louisville Assembly Plant for two weeks.
And it will shut down two plants in Mexico. Both make cars: the plant in Hermosillo, which makes the Lincoln MKZ and the Fusion whose sales had plunged 17.5% in September; and its plant in Cuautitlan which makes the Ford Fiesta.
Ford said it would lay off about 9,000 workers in the US and 4,000 in Mexico. So 13,000 of the 14,000 employees at those plants will be laid off for the period.
Affected workers in the US won’t be hung out to dry: those with more than one year of experience will get about 80% of their normal pay during the layoff, including state unemployment benefits and Ford supplemental pay, according to Ford. It did not say what laid-off workers in Mexico would get paid.
The announcement shed some more light on what might happen next:
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.
“Continue matching production to meet demand”: so there will be more production cuts and shutdowns.
Other manufacturers have similar problems. And there will be more announcements of this type.
The auto sector in the US is huge and impacts a number of industries. Auto sales (new, used, parts) make up 21% of total retail sales. So declining auto sales will hit consumer spending and auto dealers. When automakers cut production to meet this lower level of demand and to deal with their inventories, they slam the transportation sector, particularly railroads that ship new vehicles from plants and ports to cities around the country.
One of the few bright spots for railroads was the volume of motor vehicles: carloads of motor vehicles were up 2.7% in September year-over-year. The sector accounted for over 7% of total carloads.
But last week, I warned that it “is turning into the next brake shoe to drop” on the railroads. So unless a miracle happens, as I seem to like to say, railroads are going to lose one of the few remaining pillars of growth in what has become a calamitous market for them. Read…. Rail Freight Gets Clocked from all Sides in this Economy.
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I remember when I started in auto sales (at 45 years old) I went to one of the manufacturer’s sales meeting and a guy spoke saying “Nothing in America happens until a car is sold”. He was talking about the ripple effect of the auto manufacturing, sales, and service throughout the country with the effects on so many incomes. I retired recently after 22 years and have heard from sales guys about the sales drop. Too many long-term negative equity loans are coming back to haunt them. Even leasing customers seemed to be buying out their vehicle instead of starting another lease as well. The final straw will come when these layoffs in the entire chain lead to bad loans in secondary finance which will tighten their lending as well. I think that speaker was right!
how does this compare to the zerohedge article on the huge bubble in china for cars? do they like fords?
GM and Ford sales are doing well in China. GM is huge in China. Ford less so.
They’re especially fond of Buicks, I’ve read. You would think that a condition of the U.S. taxpayer’s bailing out GM(doing so threw the U.S. Commercial Code under the bus, as it were) would be a demand that they keep the manufacturing jobs in the U.S., but this is not the case. Just last week the WSJ featured an article discussing their exporting Chinese-made Buicks to the U.S. When Ford says it is cutting 9000 U.S. workers and 4000 Mexican, who do you think will be the ones to be rehired if and when?
GM makes and sells more cars in China than America. They also make more profit even though they have to split it with a Chinese company.
Fords are quite popular. My observation is that the Focus is the biggest seller. Even my son-in-law bought one and he takes us all over with it. Pickup trucks are rare in China. In 2009, when I first came here, I took a picture of one I saw, the only one in a city of 3 million people. Seven years later you do see some, but they are 99% owned by the gas, electric and water companies. A privately owned pickup is a rare sight. Why drive a pickup when you can have an SUV?
You can get a great deal on the Chevy Camero ( under $20k ). So expect GM to be next to slow production.
“Ford said it would lay off about 9,000 workers in the US and 4,000 in Mexico.”
Sounds to me like they’re moving to Mexico one lathe at a time. It’s a business decision you have to make when the place you’re already manufacturing for a very long time, tells you to leave and subsidizes you to make it quick.
Well cash for clunkers and a bailout will solve this problem.
Back out trucks and the Big Three all look lousy.
Do you ever feel sorry for the Japanese, trying to figure out what the American male wants?
Does he want to pretend to be James Bond, Crocodile Dundee, or a rancher?
I can guarantee you there are a lot of gals co-signing for these fantasies.
Don’t worry. Everyone’s credit will be reset at the end.
I think fantasies have morphed into ‘Psychological Realities’ in this Social Media Circus-World…! lololol Keeping the focus on trucks remember Sean Connery calling the Navy Guy a ‘Buckaroo’ in “Hunt for Red October” and in a sense of Cultural ‘Echoing & Projection’ I truly believe there is a lil ‘cowboy hidden’ in most American males,thanks for reading,aloha
Re Red October, many American consumers may also say that they had always wanted to see Montana, before expiring like the Russian officer who wanted to raise rabbits there.
I beleive a year ago or so I’ve mentioned the mother of all lay offs are coming.
The lay offs been massive since 09 and they keep on coming!
The USA entered into depression in 2000!
Kelli, if you are reading this… please, oh, please bring back Carroll Shelby’s ’67 Cougars. I will pre-order one. They’ll sell like hotcakes, gawronteed!!!
http://xr7g.mercurycougarregistry.com/history/
Auctions. Keep your eye on auctions.
The fine art market cratered a little over one year ago.
High end jewelry sales are down and not just a little.
Trophy real estate properties not moving and are on discount.
Personal bankruptcies are climbing the social ladder.
Caterpillar global retail sales are down 49 months straight.
Class 8 truck sales have tanked.
So its not just autos and light truck sales that are down, they are just another indicator to add to the growing litany, of the deepening recession and impending depression. Plain to see if you want to look. Problem is the vast majority of the populace have no idea of whats coming down at them.
Oh, and those auctions? Some really good bargains have begun to show up. Nibbling at the edges now, but the flood gates will be open soon, for those who have the liquidity to take advantage of the fire sales.
You are correct with auctions.. But give it a little more time,
2009 at auction at the end only about 25 / 30 people left around looking very bored and a 750 iL beemer came out, no reserve, under 30,000 mine for $2400
What good is ‘liquidity’ if you, and everyone else is swept up in chaos ??
You might have a cooooool car classic … but what good is that if some pleb, low on his/her luck …and starving, decides to risk taking your life for those candy bars piled high on that car’s console ??
I just think that most folk who think they’ll have the advantage as hell gets worse, will be in for quite a shock, from which they may not recover ……
Auctions are observable daily in the San Fernando Valley (in LA), only the locals know them as yard sales or sidewalk sales. There is furniture, clothing and most everything else from destitute households trying to liquefy for the next payment on life.
“So unless a miracle happens…”
The miracle was cash for clunkers
Ford had a lot of quality issues with the new F150 and Focus. Go on youtube or google Ford problem ecoboost, Ford focus DCT transmission problems, Ford EPAS steering problem. If other manufactures don’t have lower sales it means that this lower sales problem Ford has is related to poor quality of new Ford products and people moving away from Ford. I think Ford is becoming the new Dodge with all these quality problems.,
Common problems with the Ford focus transmission. It has been going on since 2011 ( I think)
https://www.youtube.com/watch?v=RtdazmW281Y
Ecoboost engine carbon deposit on intake valve:
https://www.youtube.com/watch?v=-ynGWxzJHjA
Defective products won’t be much of a problem once ALEC and the U.S. Chamber of Commerce have gotten rid of tort laws.
The future is bright.
I rented a Ford Fiesta that had the same issues. It was an appealing, peppy little car I might have bought, but the transmission felt like it was randomly slipping and about to fail. Later I found out they are all like that.
FORD Fixed Or Repaired Daily
or
Found On Road Deserted
Q: Why do they give away free iPhones® with a new mustang?
A: So you’ve got something to play with while waiting for the mechanic to come and fix it and while sitting around the shop.
Or First on Race Day
Millions of vehicles were sold on credit to people who can’t actually afford them, and millions of those were financed by the manufacturers themselves as captive lenders. So get ready to bail out the banks and automakers again.
Your unborn descendants will pay for it. Their funding is limitless, they can’t vote, and they never complain about the prospect of being born into bankruptcy.
For the biggest carmakers manufacturing is just a sideline. Their real business is finance. Most people are unaware of that.
All the auto manufacturers deserve it. Their failure to produce innovative products is finally catching up to them.
Millinials are captured debt serfs. Even if they could afford a new vehicle, they have little interest in nostalgic models like Mustangs, Cougars, Cameros, which I believe were targeted at retiring boomers.
Actually I disagree about millenials not liking old cars, they do like retro cars and retro styling. There are some popular racing video games which are big on retro cars.
Millenials are also a big force in bringing back vinyl records. All the new popular bands are putting out vinyl records. I think itunes is too ethereal for many.
Digital sound somehow lacks gonads…..
We used to buy American cars on principle, but we stopped when it became obvious that loyalty to them doesn’t invoke loyalty to us. Now we buy Japanese because we get better mileage.
I owned a 94 Mustang for 14 years. It was a nice looking car, but it had terrible design issues. All the weight was in the front and it would fish tail in the rain, snow or ice. It was a sunny day driving machine. BTW, never buy this car for a young inexperienced driver. It is a death machine.
There was only one car worse handling than that. The AMC Javelin, rocket fast, heavy big block engine, wouldn’t turn. If you’re ever down around the Talladega racetracks go see the museum, they have a lot of fast everything there.
There is a 1987 issue of Popular Mechanics (Oct.?) that ordered a Cadillac Brougham D’Elegance (barf name) and a Lincoln Town Car. The magazine was normally so Detroit friendly at times it was like reading their corporate newsletter.
Not this time- they just snapped
Man did they unload on both; “wretched excess on wheels”
The Caddy was given scathing review for build quality- one door hinge had multiple shims to fit-.
The Lincoln faired much better- but one prob and here I quote: ‘even our professional drivers could not keep the car in a straight line’
Around the same time I test drove a Granada- took it to a mechanic and said I think there is a steering prob. ‘Oh you’re under-inflated in back tires, then they become a self- driver’
I thought there’d be a law suit but since both got trashed I guess it was a wash.
And of course the stuff was true- not a necessity for a law suit to have the truth on your side instead of their side, but it helps.
The boomers are reaching a point they cannot use all of those horses anymore. Nostalgia lasts only so long.
Well …at some future point in time …. horses, live ones, will be what’s happenin, when petroleum becomes a trickle ……
In fact, ‘muscle power’ of all kinds, both animal & human, will come back … due to popular demand …… because all else was wasted on frivolous trinkets & must-have bling, as modernity went insane …..
The note about the impact on the railroad industry is interesting, but its raises some questions. Does it include the shipment of parts? With more plants moving to Mexico and away from the Midwest, which still has a lot of Tier One, Two and Three suppliers, I would think these numbers are up. The moving of plants to Mexico in general should be good for the railroads, even if the number of carloads doesn’t increase, I would think the distance would.
Mexican manufacturing is as crappy as Chinese manufacturing. I would and will be avoiding it.
Might be a good time to move up to a higher quality car, like a Volvo !
I got an XC90 for 1/2 price of new in 2009, because gas was $5 a gallon in summer 2008, and with the financial debacle unfolding and layoffs etc people were giving up or giving back that high payment car.
Wolf
What we are saying then is two things.
1) When you’ve exported most of the reasonable paying jobs elsewhere you eventually run out of consumers that can leverage up to buy your latest rendition of the iPhone / F150 / Samsung 4000K TV etc.
2) How long before Yellen enters the fray and puts the pedal to the metal and ramps up QE again in some form or other?
John M
a lot of cars have been bought, but finance lives forever.
This isn’t only an auto industry story, it’s a credit story. They have managed such huge sales through the easiest and loosest credit terms in history.
Zero percent, 8 year terms, etc. In finance, we call that “pulling forward demand,” and it has serious consequences. They have pulled demand forward from the future to the point that demand will be negligible once this bubble bursts for good,
They know it too, that’s the plan. The past 8 years growth has been orchestrated in such a way as to wring out every last penny from America, leaving nothing for the future.
When the plug is pulled, it will be permanent.
Rates have to come way down and some form of fed spending and gov spending has to accelerate ….again.
Look at ANY multi-lane expressway, or freeway …in L.A. say, ….. or any megatropolis around the planet, with all the attendant ‘rush-hour’ conglomeration of steel, aluminum, and plastic ….. moving nowhere fast …. and multiply that by every EM that aspires for the same ……. and tell me how that’s gonna work out for the long-term prosperity of humanity ??
…and no, the whole self-driving auto mania currently in fashion is a delusion as well
but for ‘progress’ ….
People don’t buy trucks for hauling anymore.
They don’t buy four wheel drive for off road use.
They don’t buy crew cabs to haul passengers.
These behemoths are simply testosterone pits for the male who needs to validate his manhood. He drives around alone in circles in his gas hog …from gas station to gas station.
Eventually, his truck will be stranded at the end of the driveway… outta petrol.
…with those rubbery bull nuts hangin on the hitch …. in situ ‘:]
I purchased one of those awful behemoth Ford Crew Cabs in 2002 and must say 14 years later it’s still runs like a top. Haul steel, lumber, gravel, you name it and with that 7.3 liter diesel I never whine when I fill it up. With 4 wheel drive it comes in handy when off road out hunting in Texas.
The better news it will be the last vehicle I will ever need. No car payments, fix it up when needed and no payment if interest to the banksters.
It will be a classic when I pass it down to one of my sons in another 15 years.
Don’t worry. We are still at “full employment”.