2009 Ford Fiesta S
Costly move is prompted by consumer demand for more fuel-efficient vehicles.
Ford Motor Co., long dependent on profits from pickups and sport utility vehicles, is assembling a plan to shift entire truck plants to car production in a bid to keep up with changing consumer demand in the United States, according to sources familiar with the company's plans.
Plant managers and local union leaders from around the country have been summoned to Ford's Dearborn headquarters Friday.
They'll discuss the challenges facing the automaker and the broader U.S. automobile industry as the price of gasoline continues to set record highs and consumers flee pickups and big SUVs for smaller, more fuel-efficient vehicles.
In what would be one of the most dramatic manufacturing transformations in Detroit's history, Ford would retool some of its North American plants to produce vehicles being built in Europe, where it is a leader in the small-car segment. Ford also is conducting a thorough review of its entire product pipeline in North America, hoping to accelerate the introduction of new, more fuel-efficient cars and to build more vehicles on fewer platforms.
"The best place to look is Europe," CEO Alan Mulally said recently, acknowledging that it would be too costly for Ford to import cars from across the Atlantic because of unfavorable exchange rates. "We can tailor the production to where we sell them."
Details of the plan are expected to be announced in July. They will likely include major moves like converting Ford's Avon Lake, Ohio, assembly plant from production of the older E-series van to the more modern and fuel-efficient Transit van Ford builds in Europe. But sources familiar with the situation say the company will not reveal the full scope of its manufacturing realignment for several months.
When complete, Ford expects to build more models on fewer platforms than any other automaker including Toyota Motor Corp., which has made such simplicity a recipe for success.
This accelerated restructuring is not without its risks. Retooling factories and speeding up product programs is expected to cost billions of dollars money Wall Street would rather remain in the bank as a cushion against further economic troubles. Even within Ford, some old-guard executives argue it could prove too costly. But Mulally is said to have vetoed all opposition, calling this rapid transformation vital to Ford's survival.
Future of Ford at stake
The stakes have never been higher. Ford lost $2.7 billion and recently said it will miss its long-stated goal of restoring profitability in 2009. Though the company is making money overseas, it continues to lose ground to foreign brands in its home market. Ford already has slashed pickup production in the United States and sold three of its foreign brands to help fund its restructuring.
"There really aren't many more chances left to save this company," said Wall Street analyst John Casesa. "This is an extraordinary time and it calls for extraordinary measures. I don't see any way to address $4-plus gasoline without a transformation of their product lineup."
Though sources stressed that final details are still being debated and are subject to change, they said the company plans to build the F-100, a new lighter and more fuel-efficient version of Ford's bread-and-butter F-150 pickup, at the Michigan Truck Plant in Wayne.
That factory, which is barely running a single shift, produces the Ford Expedition and Lincoln Navigator, gas-guzzling SUVs that have seen their sales collapse with rising gas prices. Ford will continue to produce those vehicles on the same line, potentially adapting them to the F-100's smaller frame.
The Louisville Assembly Plant, which manufactures the traditional body-on-frame Ford Explorer and Mercury Mountaineer SUVs, will be transformed into a unibody facility capable of producing cars, car-based crossovers or both at the same time.
Converting a factory to flexible manufacturing can take up to six months and cost $250 million or more, said manufacturing analyst Greg Gardner of the Oliver Wyman Group. The actual cost could be much higher once product development expenses are factored in.
Whither Wall Street?
The question is whether Wall Street already concerned about Ford's increasing cash burn rate will endorse the plan.
"The news may be hard for some to swallow initially, but I think investors will understand this," Casesa said. "It is clear that the world has changed dramatically for the auto companies in the last eight weeks."
Ford would neither confirm nor deny the moves. "We're not going to comment on future model cycle plan discussions," said Ford spokesman Said Deep.
But many elements of the realignment have already been made public. Ford already announced plans to convert its F-series pickup plant in Cuautitlan, Mexico, to produce the new Ford Fiesta. The subcompact, which goes on sale in Europe later this year, is slated to arrive in the United States in 2010.
The company also is planning to replace its North American midsize sedan, the Fusion, and its European counterpart, the Mondeo, with a single vehicle that will be sold on both sides of the Atlantic once the vehicles have completed their current production cycle. The automaker also was planning on bringing the next-generation European Focus to the United States in late 2010 or early 2011.
Mulally said more variants of the Mondeo could be brought to the United States, and other sources said the company is looking at more derivatives of the Focus. It's clear Ford's cycle plan is still undergoing a thorough review and further changes could be in the works.
Trucks were money-makers
There is always a danger that Ford will swing too far in its effort to catch up with consumer tastes, but the planned changes will make the automaker's factories far more flexible and able to adapt to future market changes.
Even if these new models sell well, it will be hard for Ford to make up for the lost trucks and SUV revenue. The automaker is struggling to get three-figure returns from the Focus, while it can make more than $20,000 on a Super Duty pickup.
But Ford is not abandoning trucks. Deep said the automaker will make the investments necessary to hold onto its decades-long lead in full-size pickups, and it will have the capacity available to respond when truck sales rebound, which analysts consider inevitable. That is why Ford recently announced that it is reducing shifts at two truck plants instead of closing one -- a move that will allow the company to rapidly ramp up production again.
In addition to better matching its vehicle offerings to consumer demand, the changes Ford is planning will allow the automaker to more easily meet new federal fuel economy requirements.
Moreover, the company's new contract with the United Auto Workers provides the concessions necessary to manufacture small cars much more profitably in the United States, said David Cole, chairman of the Center for Automotive Research in Ann Arbor.
"This is very doable," Cole said. "Labor is scared to death right now and willing to do things that wouldn't have been possible before. You can't not do it. Alan is ready to bite the bullet. The old Ford is gone."
[Source : The Detroit News // June 11, 2008]
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