Ford Motor Company (F) Is Doing The Balancing Act

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Ford Motor Company (F), General Motors Company (GM): These Automotive Companies Inspire the Best Brand LoyaltyFord Motor Company (NYSE:F)’s goal is simple – to earn profits. It is well aware that Europe will take time to recover, so meanwhile, it is working on maximizing the gains from its other markets.

Currently, North America is Ford Motor Company (NYSE:F)’s growth engine, where the company is outperforming the industry and all its peers. Between January to April this year, the U.S. auto market has grown by 7%, while Ford has increased its sales by 13%. This is ahead of the 10% increase by General Motors Company (NYSE:GM) and 8.5% by Chrysler, which is owned by Fiat.

Hence, the company is significantly boosting its capacity in North America. But, it is doing so without making too heavy investments. Meanwhile, it is shuttering unprofitable operations elsewhere and cutting losses.

The capacity boost in North America

Ford Motor Company (NYSE:F)’s North American turnaround has mostly been a story of capacity optimization. Over the last decade or so, the company has brought down the number of its assembly plants in North America to 11 from the erstwhile 20. Meanwhile, it has increased utilization from one or two shifts to the present situation, where three-fourths of its plants are running three shifts at around 114% utilization.

It’s no wonder Ford has astounding margins in its North American operations, which none can rival. In the first quarter, Ford’s operating margin was around 11%. It earned $2.44 billion in pre-tax earnings.

Ford Motor Company (NYSE:F) has recently announced that it will build around 240,000 more vehicles in North America. This will all happen through additional shifts and lesser downtime. The company will be adding a third shift at its Kansas City plant, which produces the highly-in-demand F-150 pickup trucks.

It will also add an extra shift at its assembly plant near Detroit for production of the Fusion and Mustang. The new Fusion has taken the mid-size segment by storm. So heavy is the demand that analysts have been concerned if Ford will be able to produce enough. The company’s plant in Flat Rock, Michigan will begin production from this fall and may do three shifts from the very beginning.

At the same time, Ford Motor Company (NYSE:F) will allow summer shut-down for just one week at 20 plants, instead of the customary two weeks. This alone will provide additional capacity of 40,000 vehicles. Incidentally, this is roughly equal to the annual capacity of the Australian plants that the company will be closing down.

The difficult decision in Australia

Ford has decided to shut its two Australian plants at Broadmeadows and Geelong in October 2016, which produced the Ford Falcon sedan and the Territory SUV. It is saddening to see the rule of the mighty Ford Falcon come to an end, but for the company it was a difficult, but timely, decision.

Ford Motor Company (NYSE:F) has already lost over half a billion dollars in Australia due to high manufacturing costs, mostly on account of currency. Ford’s cost of production in Australia is around double that of Europe, and almost four times that of Asia.

This decision hardly signifies the company’s exit from the Australian auto scene. Ford produces only around 40,000 vehicles in Australia annually, but its presence in the country is much more than that. It has around 200 dealers across the length and breadth of the country who will keep selling cars like the Focus and Fiesta, which are currently in demand.

Ford will continue to import cars in Australia at more competitive prices from countries like Thailand and others, where manufacturing costs are much lower. So, it only makes sense that in Thailand, Ford is consolidating production of the Fiesta, which is more popular in Asia and Australia.

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