The year 2010 can't come fast enough for the domestic automakers: That's when they roll out the next generation of smaller, fuel-efficient...
The year 2010 can’t come fast enough for the domestic automakers: That’s when they roll out the next generation of smaller, fuel-efficient small cars.
Unfortunately for Detroit, consumers facing record gas prices and struggling through a weak economy want those cars now. Pickups and SUVs are out of fashion, and the shift has Ford, General Motors and Chrysler scrambling to catch up.
Ford on Thursday acknowledged that it can’t keep pace with shifting consumer tastes, even after adjusting production, and is still making too many big vehicles.
The company said it won’t be able to meet its target of returning to profitability next year and again will have to reduce its output of vehicles significantly.
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President and Chief Executive Alan Mulally said in a conference call Thursday that Ford is reviewing its restructuring plan and could announce additional job and production cuts in July, when it reports second-quarter financial results.
“We all would like the basic business environment to not have deteriorated, but clearly the most important thing we can do for the long-term success of the Ford Motor Company is deal with this reality,” he said.
Mulally said the company expects a longer and slower recovery than it did several weeks ago and won’t immediately set a new profitability target.
Ford predicts gas prices will be in the $3.75 to $4.25 range for the remainder of the year.
It was a stunning turnaround from last month, when Ford posted a surprise first-quarter profit of $100 million and billionaire investor Kirk Kerkorian announced plans to buy up to 20 million shares of Ford stock because of his confidence in the company’s direction. Ford said Thursday its board voted to remain neutral on Kerkorian’s offer.
Ford shares dropped 64 cents, or 8.2 percent, to $7.16.
Still, some analysts cheered Ford’s actions, saying the company is adequately responding to the challenging market.
Detroit has relied on pickups and SUVs since their popularity soared in the 1990s, but as much as they have downshifted on those big vehicles in recent years, they haven’t been able to wean themselves fast enough. As gas prices have escalated in recent months, the market has migrated further to cars.
“This is the most dramatic shift I’ve seen in 30 years,” Ford sales analyst George Pipas said. “Small cars are going through the roof. We can’t find the ceiling with small cars, and we can’t find the floor with big trucks.”
Trucks off 13 percent
Industry sales are down nearly 8 percent through April, but trucks are off 13 percent, and analysts predict they could get worse. That would hurt all manufacturers, but the steep decline in trucks makes domestic automakers most vulnerable because large pickups and sport-utility vehicles are a bigger part of their business.
“The Japanese are relatively more prepared for this situation because a higher percentage of their portfolio is in smaller cars that get better gas mileage,” said Jesse Toprak, senior analyst at consumer Web site Edmunds.com.
Truck sales — including pickups, SUVs and vans — were 54 percent of the market in 2004 but now are 48 percent.
Global Insight analyst George Magliano said the accelerated decline this year was spurred by the rapid rise in oil prices.
“We’re looking at $135 a barrel for oil, and nobody was expecting that. It’s definitely Detroit’s major headache right now,” he said. “Detroit is still heavily weighted to [large] trucks and large cars. They’re scrambling to change their product strategies.”
But the new batch of small cars planned by the Detroit Three won’t arrive for another two years. That’s when Ford will begin selling the Fiesta subcompact in the U.S., Chrysler will sell a Nissan-made subcompact and General Motors will add a car based on the European Opel Corsa.
Ford said Thursday it would trim an additional 20,000 trucks from its second-quarter production plan, raising the total reduction in trucks to 60,000. Ford is boosting car production by 20,000.
The automaker now plans to build 690,000 vehicles in the second quarter, 15 percent fewer than a year ago.
“Those production shifts show that Ford realizes it’s the new truth now. The consumer mind set has permanently shifted,” Toprak said, and he doubts a temporary drop in pump prices will boost truck sales. “Consumers aren’t going to fall into that trap again. We don’t see this trend reversing any time soon.”
Sales of large pickups peaked at 2.5 million in 2004, 14.9 percent of the market, and outsold small cars by 57,000 that year.
So far this year, small cars have outsold big pickups by nearly 372,000.
Nearly one of four vehicles sold in April was a compact or smaller car, according to Edmunds. That change looms large in Ford’s results.
Its U.S. sales have slipped 10 percent through April, but pickups and SUVs have been hardest hit.
The F-Series pickup, Ford’s best selling and most profitable vehicle, is down 15 percent, and the Explorer and Expedition SUVs are off 25 and 27 percent respectively.
Jump in compact car
The Fusion midsize sedan is up 6 percent this year and the compact Focus has jumped 29 percent. Among car-based crossover SUVs the Escape is up 10 percent and the Edge 38 percent.
In addition to cutting second-quarter production, Ford said it plans to produce 510,000 to 540,000 vehicles in the third quarter, down 15 to 20 percent from last year, and 590,000 to 630,000 in the fourth quarter, down 2 to 8 percent.
Auto analysts forecast U.S. vehicle sales of 14.7 million to 15.7 million cars. The last time sales slipped below 15 million was 1995. The record is 17.4 million, set in 2000. Though analysts disagree on vehicle sales, they agree on the market direction.
“Soaring gas prices have finally resurrected the car section,” Global Insight’s Magliano said, and that sea change favors Asian manufacturers.
Even though domestic manufacturers sell several models that get 30 mpg or more on the highway, Toprak said most consumers don’t know that. “When consumers think of a safe, cheap, efficient car, they think first of a Japanese car. That feeling is still very strong.”
Material from The Associated Press is included in this report.