Ford Motor Co., already losing billions of dollars, will bet billions more that Americans have permanently ended their love affair with sport utility vehicles by announcing a major realignment of its U.S. assembly operations today.
The move by Ford will come amid deepening gloom in Detroit and throughout the entire auto industry with new salaried job cuts at Chrysler LLC, another downward revision by a leading consulting firm of its sales forecast for the U.S. market and comments by Nissan Motor Co. Ltd. chief executive officer Carlos Ghosn that a global slowdown is in the offing.
The surge in the price of gasoline to more than $4 (U.S.) a gallon will lead Ford to retool two U.S. plants and one Mexican factory now making SUVs and pickup trucks and instead have them assemble fuel-efficient cars or crossover utility vehicles more in tune with the sharp and sudden shift in demand in the U.S. market.
"This is a big one," said David Cole, who heads the Center for Automotive Research, an industry think tank in Ann Arbor, Mich.
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Industry sources said the transformation will include investments at engine and transmission plants to produce more fuel-efficient versions of those key systems and an increase in the number of Ford vehicles that will offer the company's fuel-saving Ecoboost technology, which allows small engines to produce the same power as some larger engines without increasing gas consumption.
In another adjustment to the collapse in pickup and SUV sales, Chrysler said it will eliminate 1,000 salaried jobs worldwide.
That announcement came as J.D. Power and Associates trimmed its 2008 U.S. sales forecast to 14.2 million vehicles, down 12 per cent from last year's total of 16.1 million and a reduction of 750,000 vehicles from the consulting firm's earlier forecast for 2008 sales.
The seasonally adjusted annualized sales rate for July is expected to fall to 13.6 million, lower than June, which was the worst month since 1993.
"The economic stress and uncertainty that consumers may face over the next six to 12 months will likely result in a continuous period of slow new-vehicle sales," Jeff Schuster, executive director of automotive forecasting for J.D. Power, said in a statement. "It is also unlikely that a pronounced rebound will occur in 2009 and conditions could actually worsen before they improve."
Deutsche Bank AG also cut its forecast for 2008 U.S. sales to 14 million vehicles.
The annualized sales rate in July will fall to a level that hasn't been seen in some time, George Pipas, U.S. sales analysis manager for Ford, said yesterday. "It's more than just a small car thing that's going on in the States right now, it's a four-cylinder thing."
About 72 per cent of buyers of Ford's Fusion mid-sized car want four-cylinder engines now, he said, compared with rates in the high 50-per-cent range a year ago.
Industry sources estimated the cost to Ford of retooling its Michigan Truck plant and operations in Louisville, Ky., and Cuautitlan, Mexico, at amounts varying from less than $1-billion to about $2.5-billion. The total cost depends on whether the auto maker needs to tear out the paint shops at the plants. Redesigning European subcompacts and compacts to be built at those plants to make sure they meet North American standards could cost billions more.
Workers at Michigan Truck build Ford Expeditions and Lincoln Navigators. The Louisville plant cranks out Ford Explorer and Mercury Mountaineer SUVs while the Mexico plant assembles F-series pickup trucks.
But a bigger question than the cost of the transformation is whether Ford can make money on small cars after relying for more than a decade on pickups and SUVs to generate profits while treating the passenger car side of the business as almost an afterthought.
"It's going to be a challenge for them to make money on smaller vehicles," said Efraim Levy, auto analyst at Standard & Poor's Corp. in New York.
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