The auto industry has lost 30% of its workforce since 2005 … but it’s only producing 11% fewer cars. This extra efficiency has boosted automakers’ returns, and could do the same for these innovative companies’ investors.
The number of cars and light trucks U.S. consumers purchase annually has increased 5.7 million since 2009 — from 10.4 million then to an estimated 16.1 million as of this past August (on an annualized basis). That’s still below the 2005 peak of 17.5 million vehicles, but it nonetheless represents impressive growth. .
The combination of increased efficiency and greater demand helped Ford Motor Company (NYSE:F) post $4.77 billion in EBITDA in the first half of the year in North America. Ford Motor Company (NYSE:F) now plans to expand its production in several creative ways that don’t require enormous amounts of money, buying it time while it builds new capacity to take advantage of the recovery. General Motors Company (NYSE:GM) isn’t far behind, trying to recoup from a government takeover and massive losses in Europe. Let’s see how each company’s ramping up to meet demand.
Ford Motor Company (NYSE:F)
Back in 2006, Ford Motor Company (NYSE:F) put up nearly everything it had left as collateral to receive a $23.5 billion loan to restructure the company, which enabled it to not go bankrupt. Now Ford Motor Company (NYSE:F) is at it again, increasing production in multiple ways to meet the surge in demand.
First, Ford Motor Company (NYSE:F) will boost production simply by expanding capacity. According to its website, Ford will grow its North American capacity by 200,000 units this year by adding more workers and shifts. It similarly boosted production by 400,000 units last year.
According to Ford, “Approximately 75 percent of our plants are running at a three-crew, three-shift or four-crew pattern in order to ensure we’re getting more of our products into dealerships”.
Ford has also boosted production by idling its plants for only one week during the summer versus the traditional two. This increased production by another 40,000 units without having to spend millions on a new plant or additional capacity at another plant.
Ford is seeing most of its increase in demand coming from light trucks, with sales up 14% this year to 958,584 according to Motor Intelligence (click on New Vehicle Sales). One source of this increased demand is from the rise in the US housing market. Housing starts were up 20.9% in July, which means there is more demand from home builders for trucks to move materials to and from a construction site.