Ford has been operating under its “Ford+” program for a couple of years in an attempt to reorient the company to
- milk profits from remaining ICE vehicles to feed EV development
- cleanly separate costs between ICE, EV and fleet vehicles
- organize the books so at least ONE division can provide the illusion of growth
They may have called it Ford+ but Ford (Minus) might be more appropriate. The company announced roughly 1000 additional layoffs of engineering personnel across all THREE segments in the US and Canada. These are in addition to the roughly 3000 offered retirement incentives in 2022 and another 3000 across Europe expected later.
A few minutes spent reading and watching auto / economics commentary on the web reflects a common set of icebergs looming in the water for all automakers but posing particular threats to Ford:
- banks have stopped loaning amounts above MSRP – no false subsidy for insane dealer markups
- many banks have stopped lending on “exotic” vehicles entirely - the value drops too precipitously leading them holding the bag if the buyer defaults
- net new car sales have increased so far in 2023 and are expected to be up for the year but something like 43% of those sales are FLEET sales, not direct-to-consumer sales – those units tend to be more barebones models with smaller profit margins
- we have apparently reached “peak truck” because Ford and RAM have gobs of inventory of prices in the $60-90k range – whodathunk that actual “working people” cannot afford a $90,000 luxury truck?
- recent interest rate hikes have further removed any upward pressure on prices – people cannot afford 6-9% interest rates on $50,000 car loans, especially when banks will no longer lend above 80% of MSRP – most American’s don’t have 20% of the purchase on hand as a down payment
- the number of “no-sales” at wholesale auctions of new cars is high and growing every week, reflecting that dealers are unwilling to recognize losses on vehicles that have been on their lot for HUNDREDS of days for fear of starting a price collapse
In the various commentaries I’ve seen, Toyota seems to see strong demand but they still seem to be planning their builds to provide ZERO inventory slack to dealers. This is frustrating dealers and customers alike. Not clear if Toyota is facing capacity issues as they switch from older platforms to ones launched in the last year (Tundra, Tacoma, Grand Highlander…) while also re-tooling for more EV and hybrid designs or if Toyota has decided to operate with thinner dealer inventory to avoid getting stuck with a glut as tastes change.
Ford seems to be facing the worst trends from the overall industry patterns and its specific strategic decisions. They’ve surrendered the entire car market to competitors. The truck market is overpriced in general and Ford dealers seem to have been the most egregious at inflating prices with bogus market adjustments and unavoidable “option packages.” Luxury SUV sales are being crippled by the astronomical prices and high interest rates and Ford sees no benefit from the jump in fleet sales to rental car companies since they abandoned passenger cars.
In general, the rise in interest rates may produce significant short term pain for consumers and automakers alike but it might be the medicine actually needed to make both makers and dealers capitulate on the losing strategy they fell upon after the covid lockup. Simply focusing on fewer and fewer vehicles with higher and higher price tags will not assure survival. It will hasten their demise.