At Ford, cutting production is Job 1

Lisa Napoli Aug 18, 2006

KAI RYSSDAL: Ford’s trying to stay out of bankruptcy. The company said today it’s going to cut the number of cars it makes in North America in the fourth quarter by 21 percent. That’s Ford’s biggest quarterly production cutback since the 1980s. Marketplace’s Lisa Napoli has that story.

LISA NAPOLI: The production cutback is just the latest step in Ford’s attempt at reinvention. It’s already said it would slash 30,000 jobs and shut 14 plants.

Three-dollar-a-gallon fuel really put the brakes on demand for Ford’s gas-guzzling trucks.

But John Stoll of the Wall Street Journal says making fewer cars isn’t gonna help Ford do a 180 right away:

JOHN STOLL: Over the short term it’s gonna hurt them. Over the long-term the theory is this will increase their chances of returning to profitability.

Which Ford has said it would like to do by 2008.

David Cole of the Center for Automotive Research said today’s announcement was a matter of when, not if, given how many cars are sitting unsold on lots:

DAVID COLE: They’re not going to build if they can’t sell, and they’re going to try to balance their production capacity with their market.

Now, automakers have historically calculated revenue based on how many cars they make, not how many they sell. Cole says that’s gotta go.

COLE: It’s a very simple issue today. It’s change to a different business model or die.

Management says look for even more restructuring announcements next month. The credit agencies aren’t impressed, given that Ford’s lost a billion dollars already this year.

On today’s news, Fitch downgraded Ford’s stock further into junk.

In Los Angeles, I’m Lisa Napoli for Marketplace.

There’s a lot happening in the world.  Through it all, Marketplace is here for you. 

You rely on Marketplace to break down the world’s events and tell you how it affects you in a fact-based, approachable way. We rely on your financial support to keep making that possible. 

Your donation today powers the independent journalism that you rely on. For just $5/month, you can help sustain Marketplace so we can keep reporting on the things that matter to you.