Janet Hostetter  /  AP
Snow covers the ground at Ford's Twin Cities Assembly Plant in St. Paul, Minn. Ford's board of directors are meeting Wednesday and Thursday to decide which plants it will close as part of a restructuring plan that is to be announced next month.
By John W. Schoen Senior producer
msnbc.com
updated 12/7/2005 7:46:32 PM ET 2005-12-08T00:46:32
ANALYSIS

With SUV sales tanking, market share shrinking and losses mounting, Ford has decided it needs to get smaller. Now as its board of directors meets Tuesday and Wednesday to draw the company’s road map, the only questions seem to be how deep and how fast the cuts need to be. But with car buyers steering away from gas-guzzling trucks and sport utility vehicles, cutting production alone won't fix Ford's problem.

With fresh November sales numbers showing steep sales declines, the company may need to target more plant closings and eliminate more jobs than it originally expected. Ford has said it won’t disclose details until January, but published reports already have speculated that as many as 10 assembly plants could be closed and 30,000 jobs cut, or about 10 percent of the work force. (Rival General Motors already has announced it will close a dozen plants and cut some 30,000 jobs .)

The problem, simply put, is that U.S. automakers bet heavily on sales of high-profit SUVs and light trucks, riding that wave of profits as long as sales remained strong. But with fuel prices rising, sales of passenger cars this year are on track to overtake trucks and SUVs for the first time since 1981, according to Ford’s own analysis.

That shift in car buying — to more fuel-efficient car models — has handed Asian rivals like Toyota and Honda a bigger piece of the U.S. car market market. Last week, Toyota announced it posted an 11 percent sales gain from January through November; Honda’s sales were up 7 percent for the same period. Nissan’s sales are up 11 percent, and Hyundai was up 9 percent so far this year.

But Ford has not redesigned its product line and retooled its factories fast enough to keep up with the shift from heavier vehicles to smaller, more fuel-efficient cars. The company tried to revive its once-popular Explorer SUV with a makeover this fall. But car buyers weren’t impressed: Explorer sales fell 52 percent in November.

Now, like an airline with too many seats in the sky, Ford has too many plants; something like 30 percent of its manufacturing capacity is idle, according to J.P. Morgan analyst Himanshu Patel. The only question seems to be just how many of them will remain open after the cutbacks are finalized.

Among the likely targets are the St. Louis, Mo., plant where the company makes Ford Explorers and Mercury Mountaineers, according to Bear Stearns analyst Peter Nesvold. Production of those models could be moved to Ford’s Louisville, Ky. plant, he said in a recent research note. Potential plant closings also include the Ford Ranger plant in St. Paul, Minn., and the Wixom, Mich., plant where Ford makes Lincoln Town Cars.

But cutting operations alone won’t solve Ford and GM’s problems: They still have to figure out how make money with the heavy burden of pension and health care costs that their overseas competitors don’t face. To try to keep their factories humming, both GM and Ford have resorted to steep discounts to keep cars and trucks moving from their showrooms. But those price cuts have cut deeply into profits: The two companies combined have lost more than $6 billion so far this year.

Despite the continued heavy losses, Ford doesn’t face imminent financial peril. Car makers for decades have weathered booms and busts, and Ford has stockpiled nearly $20 billion in cash to tide it over until better times.

But so far, it's not clear how Ford plans to use that money to return to profitability. Unlike GM, Ford has not yet unveiled a promised line of redesigned trucks and SUVs. And if consumers continue to favor better-mileage cars over gas-guzzling SUVs and trucks, Ford will have to invest in redesigning its offerings.

The company has promised to boost production of gas-electric hybrids, but analysts say the higher price of those vehicles will slow their adoption by car buyers. And so far, Ford's new conventional car models, like the Ford Fusion and Ford 500, have not made up for lost SUV and truck sales. Last month, Ford’s overall car sales fell another 6 percent from a year ago.

© 2013 msnbc.com Reprints

Discuss:

Discussion comments

,

Most active discussions

  1. votes comments
  2. votes comments
  3. votes comments
  4. votes comments

Data: Latest rates in the US

Home equity rates View rates in your area
Home equity type Today +/- Chart
$30K HELOC FICO 4.94%
$30K home equity loan FICO 5.19%
$75K home equity loan FICO 4.58%
Credit card rates View more rates
Card type Today +/- Last Week
Low Interest Cards 13.40%
13.40%
Cash Back Cards 17.92%
17.91%
Rewards Cards 17.12%
17.11%
Source: Bankrate.com