Ford Eyeing Production Increase, Monitoring Supplier Health

Strong demand for the Ford Focus C-car and Escape cross/utility vehicle, spurred by the government’s “Cash for Clunkers” incentive scheme to trade certain used cars in for new vehicles, is causing Ford Motor Co. to reexamine its upcoming production schedule.

“We’re trying to get our arms around this program, because it’s important to try and understand or at least make assessment of what the ongoing demand is for the products,” George Pipas, Ford’s top U.S. sales analyst, tells Ward’s.

At the end of July, days’ supply of the Focus and Escape was 25 and 21, respectively, according to Ward’s data. Auto makers generally prefer an inventory of 60-65 days.

The Focus posted a record 21,830 deliveries in July, 43.6% ahead of like-2008. Escape sales jumped 94.2% to 20,241.

The Focus and Escape are the No.2 and No.7 most popular vehicles purchased under cash for clunkers (formally called the Car Allowance Rebate System), according to the National Highway Traffic Safety Admin., which runs the incentive program.

Pipas acknowledges days’ supply of the two hot-selling models is on the low side but notes Ford already has taken steps to ramp-up production, boosting its third-quarter output schedule from 460,000 units to 485,000. Any further increases will not be revealed until Sept. 1.

The auto maker also is spreading out its traditional 2-week plant shutdowns, particularly at facilities that produce vehicles in high demand, including the Wayne, MI, assembly plant, which builds the Focus, and the Kansas City, MO, facility, where the Escape is made.

“When you have two weeks off, it really means for two weeks dealers aren’t getting any production at all,” Pipas says, acknowledging many dealerships are in short supply of both vehicles.

Ford says Escape among top-10 vehicles being purchased under “clunkers” program.

Adding to the problem, Job One on the ’10 Escape is scheduled to begin next week, he says. “There’s always a little interruption (at launch), so we probably won’t produce as many units.”

However, Ford is working to ensure dealers have a steady supply of vehicles, even though the quantities may be less than expected, Pipas says.

Even if Ford does determine production should be increased during the third and fourth quarters, there are hurdles to overcome. “As a practical matter, we depend on several layers of suppliers,” Pipas says, noting the supply base is “fragile” due to the ongoing global recession.

However, Burt Jordan, executive director-global powertrain purchasing, says Ford has been paying close attention to the overall health of its supply base in preparation for a potential production ramp-up.

“We’ve been quite happy with the way (suppliers have) responded to the (economic) crisis,” he tells Ward’s. “We’re pleased with the way they’ve managed themselves.

“Everybody understands the importance of cash flow now and (they are) restructuring their operations, much as we have,” Jordon says, noting Ford’s purchasing group last year expanded its risk team to better understand the health of the company’s supply base.

“We’re working with (suppliers) to make sure they can meet our demand…and quality requirements. We’re not going to let bad parts out there.”

While much attention is focused on large Tier 1 suppliers, such as Visteon Corp. and Delphi Corp., Ford also is monitoring smaller Tier 2 and 3 suppliers, Jordan says.

The ramp-up in production by General Motors Co. and Chrysler Group LLC, both of which idled most assembly plants during their respective bankruptcies, does not pose any problems, he notes.

“We understand where the parts are produced and where our competitors are. So we’re not concerned there will be any interruption at all.”

Pipas expects the additional $2 billion for the CARS initiative approved last week by the U.S. Senate to last longer than the first round of funding, which nearly was depleted a few weeks after the launch of the clunkers program.

“If nothing else, lower levels of inventories will lead to longer dealer reports,” he says.

“Dealers can put a hold on a unit coming from the factory in a week or two and have a tentative arrangement with a customer. But they can’t deliver the unit until it arrives at the dealership. So that may slow the process in coming weeks.”

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