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US:How plans went sour for Ford's turnaround
How plans went sour for Ford's turnaround
Gas prices dent truck sales
BY SARAH A. WEBSTER
DETROIT FREE PRESS BUSINESS WRITER
As Ford Motor Co. embarks on an effort to revise its 6-month-old turnaround plan, workers, analysts and industry insiders have found themselves asking: How could it go wrong so fast?
But inside Ford, the trouble started as early as April. Ford researchers and executives started to take notice of worrisome trends in the sales of full-size pickups -- trends that would grow alarming in the ensuing months and help convince company leaders that even more belt-tightening would be needed.
"What we saw in the full-size truck segment was very important," George Pipas, Ford's top sales analyst, told the Free Press late Friday.
Just a month ago, Ford proudly stood by its Way Forward turnaround plan -- the effort launched in January that calls for closing 14 plants, eliminating 34,000 jobs and boosting new car and truck sales by 2012.
On June 21, the Dearborn-based automaker invited more than a hundred automotive journalists to its new test track to review the company's 2007 lineup -- including the critical Ford Edge crossover due in showrooms this fall -- and several of Ford's top executives spoke enthusiastically about all of the progress being made.
"We are on track," reported a confident Mark Fields, Ford's executive vice president in charge of fixing operations in North America.
Fields had just finished taping a similar message to employees, and, with confidence in his air, he shrugged off criticisms from outsiders, who felt the plan was moving too slow.
"I don't spend a lot of time worrying about what the outside world thinks," Fields told journalists.
Inside Ford headquarters, though, concern was building that additional cost-cutting might be needed, as gas prices were expediting a consumer shift out of money-making trucks into cars and crossovers.
That concern culminated Thursday, when Ford Chairman and Chief Executive Officer Bill Ford announced that a more aggressive plan would be announced within 60 days. Ford said "everything" is on the table for examination: Plants. Jobs. Buyout programs. Benefits. Even the timetable for previously announced factory idlings.
It's bad news -- but bad news that the company needs to deal with sooner rather than later.
A disturbing development
Analysts at Ford began paying particular attention to monthly sales of pickups after industrywide pickup sales fell 6% in April. It was a crucial development.
Gas prices had been higher than consumers liked for more than a year, causing a steady exodus out of SUVs. But for the first time, the data suggested highly profitable pickup sales might be vulnerable, too.
In the past, pickup sales were largely viewed as resistant to increases in gas prices, since most full-size pickup buyers use the vehicle for work on farms and construction sites. But an estimated one-fourth of pickup buyers -- about 600,000 a year -- drive the big, powerful vehicles even though they don't need them.
F-Series sales were still strong, but the model accounts for nearly 30% of the company's total sales in the United States. So if a new trend in pickup sales were under way, Ford wanted to be the first to know -- and react.
One Ford analysis showed that if the new lower level of pickup sales were sustained throughout the year, there would be nearly 350,000 fewer truck sales than two years ago -- a decline that could have perilous ramifications for many truck sellers, including Ford.
When dealers closed the books on May, Ford observed that full-size pickup sales fell nearly twice as much as in the month before -- 11% -- prompting an even closer examination of trade-in data.
Pipas recalls telling Ben Poore, Ford's truck group marketing manager: "We need to get our arms around whether buyers are leaving the segment or delaying purchases."
If consumers were delaying purchases, the problem might not be so bad. But if they were leaving the segment, Ford might have to readjust its plans.
Before the final numbers were in for June, Chairman Ford gave hints that trouble might be in the air and that changes to the Way Forward might be coming.
In an interview with the Free Press on June 20, the day before Fields' speech to the news media, Ford said he was generally pleased with the progress being made at the company.
"But we are dealing with some new realities that have really accelerated since Way Forward was launched, which, by the way, was only back in January," he said.
"But in those months, we have had a mix shift driven by -- principally by -- the price of gasoline, which has not been advantageous to us. And material costs remain stubbornly high. So I want us to have a renewed effort on getting our costs out."
Little comfort in sales report
On July 3, automakers released their sales results for June.
The overall numbers were very bad for full-size pickups. Sales had plummeted 29% -- more than twice the decline in May and nearly five times the original decline in April.
By June, year-to-date sales of full-size pickups were off 10% and the F-Series was off 2%.
While that gave Ford bragging rights -- it picked up more than 3 percentage points of market share in the category by outperforming rivals -- the overall performance of pickups was giving Ford executives little comfort.
Full-size pickup sales fell from 13.5% of all new vehicle sales in the first 3 months of the year to 12.7% in the second quarter.
And that wasn't all that raised eyebrows, Pipas said.
Trade-in data numbers showed that about 70% of full-size pickup buyers traded in for another pickup. But for the 3 months ending in June, that number fell to 65%, and the data showed buyers moving to cars and SUVs.
"In our view, that's an indication that the marginal truck buyers may leave," Pipas said. "Demand for the product is slowing. ... It's clear to us."
At first, the reaction to Ford's announcement to revise its turnaround plan was shock, sending Ford shares down 14 cents, to close at $6.19 Thursday. On Friday, though, confidence in Ford seemed to bounce back, as analysts began digesting the news. Investors seem to be giving Ford credit for addressing their challenges directly. Ford shares closed Friday at $6.28, up 9 cents.
With $23.6 billion in cash, Ford is nowhere close to bankruptcy, Standard & Poor's credit rating agency wrote in a Friday report.
But S&P said pickup sales remain a concern.
"Even with the market outperformance so far in 2006," the agency wrote on Friday, "we remain concerned that the earnings contribution of the F-Series could suffer significantly starting in late 2006 and 2007."
My first car was a 67 Mustang Coupe, 2nd one was a 67 Cougar XR-7, 3rd one was a 66 Mustang Coupe. Why did I get rid of these cars for ? I know why, because I'm stupid, stupid, stupid.
My next Ford.....