It Starts: Shutdowns, Production Cuts, Layoffs at Auto Plants
“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.