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Ford To Idle Four Factories Due To Slowing Car Demand, Rising Inventories

Monday, October 17, 2016 23:37
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(Before It's News)

Over the weekend we recapped some of the less than impressive moments in the recent US car industry history, which suddenly appears to be bombarded with a
barrage of bad news: starting with Ford’s disastrous August sales when
the company admitted “sales have reached a plateau“, continuing to the surge in delinquent subprime auto borrowers hitting nearly a 7 year high as the marginal creditworthy car buyers disappears, then noting the record $4,000 in industry-wide new car incentives
in September as preventing a plunge in last month’s auto sales, and
recalling last week’s downgrade of the US auto sector by Goldman which said that the US “cycle has peaked“…

…one would almost think that a respite from the bad news was in order. One would be wrong.

As a result of slowing demand and declining US auto sales coupled with growing inventory, Ford Motor is halting one of two plants that builds its top-selling F-150 pickup as it idles four factories this month amid slowing U.S. auto sales.

As Bloomberg reports, starting this week, Ford is shutting its Louisville, Kentucky, factory building the Escape and Lincoln MKC sport utility vehicles, as well as two plants in Mexico that make the Fusion sedan and Fiesta subcompact, according to an e-mailed statement. Next week, the second-largest U.S. automaker will close the F-150 factory near Kansas City for seven days. And starting Oct. 31, the Louisville plant will be idled for another week.

The plant closings follow last week’s shutdown of Ford’s Mustang factory in Michigan after sales of the sports car plunged 32% in September.

Contrary to the popular refrain of a strong economy, US auto sales are slowing as many analysts predict the industry won’t match last year’s record of 17.5 million cars and light trucks. As we reported recently, Ford CEO Mark Fields has said the U.S. auto market has plateaued and that showroom sales are weakening. “We said we expected the overall retail industry to decline in the second half of the year,” Kelli Felker, a Ford spokeswoman, said in the statement. “We also said to expect to see some production adjustments in the second half — this is one of them.

At least they stick to their word.

As a race to the bottom begins amogn the carmakers – F-series sales fell 2.6% last month as a pickup price war heated up – consumers will be the winners, able to pick up vehciles at increasingly lower prices. Escape sales dropped 12% in September as Ford faced competitive pressure from the Toyota RAV4 and Honda CR-V. Fusion sales plunged 18% and Fiesta was off 40% as car sales continue to languish with low fuel prices pushing buyers into trucks and SUVs.

So far trucks, picksups and SUVs have been the silver lining in an other wise dreary automaker landscape, rising as the rest of the lightvehicle segment stagnated, However, should gasoline prices keep rising, that too is about to change in adverse direction.

Meanwhile, Felker said Ford is trying to match production with demand. Inventories have been swelling on the models the automaker is idling. The company had 93 days supply of F-series pickups, which includes the F-150, at the end of September, up from 83 days a year earlier, according to researcher Autodata Corp.

According to Bloomberg, Escape inventory grew to 64 days, from 50 a year earlier, while Lincoln MKC climbed to 96 days from 91 last year, according to Autodata. A 60-day supply is considered optimal. Ford had 72 days supply of Fusion sedans at the end of last month, up from 51 a year earlier, and it had enough inventory of the Fiesta to last 77 days, up from 56 in September of 2015, according to Autodata.

Worst of all, while the rest of the US manufacturing sector has been in secular decline, the auto industry was perhaps the last shining light for battered US manufacturing during the past several years. However, if demand for cars continues to collapse, forcing supply to follow suit, it is only a matter of time before the US manufacturing recession returns with a vengeance, and at the worst possible time: when not even the US service sector can hinder the realization that the US economy is on the verge of contracting.

Finally, here are some auto-related charts courtesy of Goldman Sachs.

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