In a sign it will no longer cling to market share at the expense of profit, Ford Motor Co. on Friday announced deep production cuts designed to bring its supply of vehicles in line with withering demand for its biggest sellers — pickups and SUVs.
Ford said it will temporary shut down 10 assembly plants across North America through the end of this year to cut its fourth-quarter production by 21 percent.
After losing $1.6 billion in North America last year, Ford announced a turnaround plan in January that called for shedding 25,000 to 30,000 jobs and closing 14 plants by 2012. By year’s end, the company was to have cut production capacity 15 percent and be a third of the way toward its targeted number of employee cuts.
Chairman and Chief Executive Bill Ford said last month that the plan — dubbed the “Way Forward” — would be accelerated. On Friday, he said the details would be revealed in September.
In response to the production cuts, Fitch Ratings downgraded Ford’s debt further into junk status, while two other ratings agencies placed the company on review. Analysts said next month’s announcements could include more plant closures and job cuts, as well as quicker introductions of new cars and crossovers.
The announcement does not bode well for the company’s short-term prospects, but it probably reflects a more realistic view of Ford’s place in the market, analysts said.
“Ford is getting more realistic about its share trajectory,” Bank of America analyst Ron Tadross said in a research note.
Dearborn-based Ford has long had the second-largest chunk of the U.S. market after General Motors Corp. But last month, Toyota Motor Corp. — the most formidable of Ford and GM’s foreign competitors — outsold Ford for the first time.
The purpose of the cuts is “to get it right with regard to current overall demand, as well as the demand for each particular segment,” Ford sales analyst George Pipas said.
The Big Three U.S. automakers — Ford, GM and DaimlerChrysler AG’s Chrysler Group — have been caught in the shift away from trucks and sport utility vehicles to smaller cars and crossovers as consumers seek better fuel economy. The Big Three’s combined U.S. market share fell to 54.5 percent for the first seven months of 2006, down from 58.7 percent in the same period a year ago.
GM already has announced it will cut production 7 percent to 8 percent in the third quarter.
Ford said its fourth-quarter production would be down 21 percent, or 168,000 units, from last year. Third-quarter production will be 20,000 units less than what was previously announced and 78,000 units, or 11 percent, less than last year.
For the full year, Ford plans to produce about 9 percent fewer vehicles than last year for a total of just over 3 million. Bill Ford said it was the company’s biggest North American production cut in more than 20 years.
Ford, which lost $254 million in the second quarter, is heavily dependent on SUVs and other trucks, which have much greater profit margins than cars. Last year, 68 percent of the vehicles sold by the company in the U.S. were trucks, compared with 58 percent for the industry overall.
“An unprecedented spike in gasoline prices during the second quarter impacted our product lineup more than that of our competitors because of the long-standing success of our trucks and SUVs,” Bill Ford said in an e-mail to employees Friday.
The nation’s second-largest automaker said that by better matching inventories to demand, it can avoid costly incentives and reduce inventory carrying costs for dealers.
The Wall Street Journal, citing unidentified sources, reported Friday that Ford is considering shutting down more factories and cutting salaried jobs and benefits by 10 percent to 30 percent.
Ford spokesman Oscar Suris declined to comment on the report.
The new production schedule will result in temporary shutdown this year at assembly plants in St. Thomas, Ontario; Chicago; Wixom, Mich.; Louisville, Ky.; Wayne, Mich.; St. Paul, Minn.; Kansas City, Mo.; Norfolk, Va.; and Dearborn, Mich.; Ford said.
Company officials would not say what specific impact the production cuts would have on workers. In general, hourly workers placed on temporary layoff receive 95 percent of their wages through state unemployment benefits and a supplement by Ford.
The United Auto Workers had no immediate comment on the announcement.
In Louisville, which has two affected plants, Mayor Jerry Abramson said he was told by Ford executives that the Louisville Assembly Plant, which makes the Ford Explorer and Mercury Mountaineer, will be shuttered for six weeks. The Kentucky Truck Plant, one of four plants producing the best-selling F-Series pickups, will close for five weeks in the fourth quarter, he said.
The production cuts are the second time this week that slower sales have forced Ford to announce changes. On Tuesday, it said it would trim the number of dealerships it has in 18 metropolitan areas. Dealer profits declined an average of 10 percent in the first half of 2006, the company has said.
Fitch downgraded Ford and its finance arm Ford Motor Credit Co. to “B” from “B+” and lowered its senior unsecured debt to “B+” from “BB-.”
“Volume declines in Ford’s pickup segment, along with continued declines in midsize and large SUVs, are likely to accelerate revenue declines and negative cash flows in 2006,” the agency said.
Standard & Poor’s Ratings Services and Moody’s Investors Service both put Ford’s credit ratings on review for possible downgrades further into junk territory.