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Duh!
Posted by: McQ on Tuesday, July 22, 2008

Ford plans to bet its future on smaller cars:
The struggling automaker, reacting to what it sees as a rapid and permanent shift in consumer tastes brought on by high gas prices, plans to unveil its new direction on Thursday, when it will report quarterly earnings.

Among the changes, Ford is expected to announce that it will convert three of its North American assembly plants from trucks to cars, according to people familiar with the plans.

And as part of the huge bet it is placing on the future direction of the troubled American auto industry, Ford will realign factories to manufacture more fuel-efficient engines and produce six of its next European car models for the United States market.
While a prudent and important move to save Ford, it just blows my mind that, like our government, the rise in gas prices, forecast for years and years, wasn't better anticipated by the auto industry. I know they have a strategic planning division - did they just not see this, or did the corporate leadership, just as our political leadership has, turn a blind eye toward their warnings content to ride the wave of bigger car sales?

I'm not saying they shouldn't have fulfilled, as much as possible, the demands of the market, but it appears, from this article, that they're just now getting into a plan that should have been an executable contingency at the first sign of this expected increase in fuel costs.
“We don’t have a sustainable company if we don’t do this,” [chief executive, Alan R.] Mulally recently told members of his management team.
Mulally recently took the reins at Ford, coming over from Boeing in 2006. He's figured out the obvious future for Ford and is moving as quickly as he can to change the mix from 60% truck/SUV to a majority of the vehicles manufactured by Ford being cars - fuel efficient cars.

Of course so is every other car manufacturer. We'll see how this all turns out.
 
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While a prudent and important move to save Ford, it just blows my mind that, like our government, the rise in gas prices, forecast for years and years, wasn’t better anticipated by the auto industry
To make small cars today, GM would have made the decision when gas was $2.00

Let’s see

We just had 15 solid years of gas prices being relatively stable and low and only increasing temporarily on political events.

At the time we were engaged in 9/11 in Afgahnistan and the build upto and entering into a war in Iraq. This being one reason to believe oil the price increase at the time had more than one explanation.

China and India didn’t turn on just last year. So although their presense was a factor, at the time their consumption was being picked up easily by the oil producers.

At time, the price of gas had not impacting the makeup of car sales in the least. People still were buying SUVs. The market response at the time was to hold of buying or buy what you would have.

Lastly, a lot of people with the same credibility in 1980 would have told you high gas prices are here to stay. That claim proved to be false.

No one had a crystal ball.

Based off the stories on this over the past week, I see the new fashion is to blame the auto companies for the high price of gas. It will probably work. Until people do buy small cars and still hate the price of gas and the car they had to buy because of it.

In fairness, they are late committing to a switch which should have been initiated about 1-1.5 years ago. From which we would be seeing cars 2.5-3 years from now.

Its like pumping oil. Just because you open of the lease today, doesn’t mean you’re pumping oil tomorrow.
 
Written By: jpm100
URL: http://
There’s a reason Ford fired himself as head guy...

And jpm, are you saying that Toyota had some sort of magic that let them see the future more precicely? Ford’s been struggling due to the size of their vehicals (and the fuel-cost that goes with them)...

This shouldn’t be such a shock...
 
Written By: Scott Jacobs
URL: http://
In fairness, they are late committing to a switch which should have been initiated about 1-1.5 years ago. From which we would be seeing cars 2.5-3 years from now.
This has nothing to do with crystal balls - this has to do with competent strategic planning and the willingness of corporate to listen to those sounding the warning bells.

We’ll see which corporation among the car makers is the most flexible and able to make the transition the quickest. Whoever that is will be the exception that proves the point.
 
Written By: McQ
URL: http://www.QandO.net
Honda, Toyota, etc. all make some large, not-so-fuel efficient vehicles that sell well, so I don’t think it’s wise to lay all of Ford’s troubles at the feet of gas prices and consumer preferences for smaller cars. There are other reasons.

 
Written By: Grimshaw
URL: http://
There are other reasons.
You mean "their cars suck wang", right? :)

And yes, they do. After a HORRIBLE experiance with a "domestic" car, I will never own something that isn’t a Nissan, Toyota, or a Honda...
 
Written By: Scott Jacobs
URL: http://
Scott - Toyota made most of the same mistakes as Ford and GM here in the US. They bet on large trucks and SUV’s over the last few years (as did Nissan) and that move is blowing up in their face. I believe Toyota has also just announced plans to switch factories from trucks to cars.

The advantage that Toyota and Nissan-Renault have is that they already import/build small cars from their world markets here. Thus they can shift more quickly to the change in demand. Ford and GM tend to build & design all their US vehicles here, primarily for sales in North America only.

The Ford move is not so much about realizing that they need to build and sell smaller cars in the US. The critical decision seems to be that they are going to start selling cars from their international units here in the US rather than develop small cars for the US market. This will bring small cars here much faster than the traditional Detroit approach, although it will still take a couple years.

It is not without risk. For various reasons, GM & Ford have not been successful selling their European models in the US in the past. If they fail to execute this move well and ensure that the styling and model and feature mix appeal to US buyers, then things will just get worse.

And if you really want see the auto industry hurting, have gas drop back under $3 in the next 18 months and they will be stuck with small cars they cant sell and SUV’s will once again fly off the lot with big profits with no production capacity available to produce them. I don’t expect that to happen, but it is the killer scenario for the US industry.
 
Written By: GBW
URL: http://
People aren’t going to buy smaller cars because auto manufacturers tell them higher gas prices are on the way. People are going to buy smaller cars because the gas prices are higher *right now*. In the same way, governments and individuals aren’t going to want to switch their energy supply sources or explore off-shore drilling because oil companies say that reserves are going to get dangerously low in the near future, that’ll only happen once the wells are actually already dry.
 
Written By: Chris
URL: http://
Needless to say, the price of gasoline will not go down soon, if it all. If it were to go down, it wouldn’t go down by very much.

However, I wouldn’t be surprised if the price of gasoline increased at a much slower rate relative to other consumer goods, as well as wages! Measured in terms of the buying power of the average family, then, the price of gasoline could effectively go down.

My prognostication is this: if the economic and energy policies over the next four years tend to favor markets rather than regulation, by the next election cycle the American public will be buying as many SUVs as they were a year ago. So, the automakers should retain the capability to re-tool back to the larger vehicles.

After all if wages increase by 8% per year, we may be calling $4/gal gas "cheap" in 2012.

—-John Johnson
 
Written By: John Johnson
URL: http://
Toyota made most of the same mistakes as Ford and GM here in the US. They bet on large trucks and SUV’s over the last few years (as did Nissan) and that move is blowing up in their face. I believe Toyota has also just announced plans to switch factories from trucks to cars.
Would that be the reason Toyota had the highest sales in the US?

Don’t forget that ontop of every Ford there’s a good chunk added on just to pay for the fecking insane pension costs...
 
Written By: Scott Jacobs
URL: http://
Would that be the reason Toyota had the highest sales in the US?
Having the highest US sales does not mean that Toyota did not take a bath on the truck and SUV portion of their sales portfolio. Toyota’s overall sales are down, their truck sales are down, and they are spending money to convert US factories from trucks to cars. I don’t think that was in their strategic plan. The Tundra pickup has been an expensive failure for Toyota. They misjudged that market just like the US companies did.

As I noted previously, Toyota has the ability to compensate for the losses by focusing on their existing small cars and adjust to the overall market more quickly than Ford or GM. Ford’s announcement seems to be aimed at allowing them to operate more like Toyota rather than having multiple independent international auto companies building completely different cars.

Walk into a Ford dealer in Europe or Australia and you won’t recognize a single car compared to a US dealer. Mulally seems intent on changing that, while also initially bringing smaller Fords to the US more quickly than under the old way of doing things.



 
Written By: GBW
URL: http://
This has nothing to do with crystal balls - this has to do with competent strategic planning and the willingness of corporate to listen to those sounding the warning bells.
Not really. What it has to do with mostly is what sells. When there is a choice, small cars don’t sell.

Which is why (If I recall rightly) Dale drives a Dodge 2500 Diesel, for example, and why most folks have been leaning toward larger vehicles. Small cars don’t sell in nearly the amounts, when people are given a choice... they just don’t.

The air is coming ut of this balloon, and I think you’ll find a lot of reversal going on in these decisions, when the gas prices star back down... as they already have.

And besides that factor, even, comes the idea that even assuming prices dont’ come back down for a while, a new car payment is far higher than the price difference in fuel.

 
Written By: Bithead
URL: http://bitsblog.florack.us
People aren’t going to buy smaller cars because auto manufacturers tell them higher gas prices are on the way.
I certainly didn’t imply or intimate they would, Chris.

In fact, I believe I said:
I’m not saying they shouldn’t have fulfilled, as much as possible, the demands of the market, but it appears, from this article, that they’re just now getting into a plan that should have been an executable contingency at the first sign of this expected increase in fuel costs.
What I’m talking about is planning - strategic planning an positioning your company to rapidly react to such a changing situation. What I’m trying to point out here is while Ford is finally committed to a plan of action, it appears its a "pick up" plan driven out of dire necessity instead of a contingency which was well planned, based in assumptions which would have alerted them to the coming problem and put them in a position to react quickly and take advantage of the situation instead of being driven by it.
 
Written By: McQ
URL: http://www.QandO.net
Not really. What it has to do with mostly is what sells. When there is a choice, small cars don’t sell.
Uh, no.

This has nothing to do with what sells today. This has to do with strategic planning and having in place contingencies to rapidly shift production to what will sell tomorrow.

Tomorrow’s here and guess who is just coming up with a slapped together plan?
 
Written By: McQ
URL: http://www.QandO.net
The problem is that strategic planning in the auto industry requires enough lead time (~5 years) to have those new vehicles on the market. So in order to be placed properly now, they would have had to correctly predict the market shift in 2003-4 with a high enough degree of certainty to convince the execs to make the model and production changes. Not easy.

But yes, Ford should have started the move to a more globally oriented product line up years ago. GM at least started this shift with the change in their Saturn model lineup in the past few years.
 
Written By: Jeff the Baptist
URL: http://jeffthebaptist.blogspot.com
"a new car payment is far higher than the price difference in fuel."
Yeah, but it’s still not a trivial difference - probably 33-50% of your annual car payments.

If two guys each drive 15,000 miles a year, one with a 15 MPG car and another with a 30 MPG car, the 15 MPG guy is going to use 500 more gallons of gas a year. That’s $2,000 more a year when gas is $4/gallon. That’s probably the equivalent of 3-6 additional car payments per year. If gas is $2/gallon it’s only 1.5-3 payments per year (Assuming someone’s car payments for the 15 MPG car run $333-$666 per month. Could be lower or higher than that range.).

 
Written By: Grimshaw
URL: http://
The problem is that strategic planning in the auto industry requires enough lead time (~5 years) to have those new vehicles on the market. So in order to be placed properly now, they would have had to correctly predict the market shift in 2003-4 with a high enough degree of certainty to convince the execs to make the model and production changes. Not easy.
Correct... I should add, more a matter of luck than skill. And as I said some months ago... Should they have assumed government would create a fuel shortage situation?

And please don’t tell me about how the Japanese and Koreans were better positioned because of their ’planning’. Their planning amounts to having only recently getten into the full-sized truck market, and thereby having many smaller platforms already on the ground, not having made anything else.
Yeah, but it’s still not a trivial difference - probably 33-50% of your annual car payments.
Well, we’ve discussed that before. In that discussion, the cars in question were Keith’s Neon compact and my mid-sized Rainier SUV. The Neon reportedly gets $30, and my SUV gets around 17 around town. (I think in actual fact the Neon doesn’t do quite so well around town, but let’s go with what we have)
Let’s break this out; I commute ~25 miles per day, RT. So, assuming worst case MPG on the SUV and your stated best case (30mpg) on the Neon, the numbers break out this way:

125 miles/17mpg*$3.40=$25
125 miles/30mpg*$3.40=$14

So, you’re talking a difference of around $10 per week, even at the extremes.



You can recalc for $4.00 if you’ve a mind for it, but I can’t imagine even that coming up as high as a new car payment.




 
Written By: Bithead
URL: http://bitsblog.florack.us
Well Bithead, I’d dispute that the typical person only drives 6-7,000 miles a year (125 miles a week X 52 weeks = 6,500 miles) so I’d consider that estimate low.

I’d at least double that and now you’re at $22 a week difference when gas is $3.40. That’s $1144 a year. When gas is $4 a gallon it rises a bit to $1300. I don’t think that’s less than a typical car payment for almost anyone. 2-4 payments is more like it. The further difference between these calcs and my first ones are accounted for in my 15k annual mileage assumption (vs. 13k here) and the couple extra MPG lower I assumed.

 
Written By: Grimshaw
URL: http://
"small cars don’t sell"

Volkswagen, etc.
 
Written By: timactual
URL: http://
Well Bithead, I’d dispute that the typical person only drives 6-7,000 miles a year (125 miles a week X 52 weeks = 6,500 miles) so I’d consider that estimate low.
That just happens to be what I drive back and forth to work, which of course is a bare min. Anything firther, is by choice, after all.
I’d at least double that and now you’re at $22 a week difference when gas is $3.40. That’s $1144 a year. When gas is $4 a gallon it rises a bit to $1300. I don’t think that’s less than a typical car payment for almost anyone. 2-4 payments is more like it
But here’s the deal; I’m not MAKING payments on the truck. So explain to me how I’m saving so much money by singing on for a car payment. Take that $1144 and divide by 12. That’s the difference in expense monthly. I have to tell you I’m not overly excited about driving a car with a $95/mo payment.

Plus, I lose the solid frame under me, and the ability to haul my trailer? Sorry, but from any angle this is a hard sell.

 
Written By: Bithead
URL: http://bitsblog.florack.us
Volkswagen, etc
I assume you’re talking Beetle, or the Microbus. They sold, not because they were serious transprtation, but because they were:

(Chose one)

1: Counter-culture

2: Cute, particularly the ones that they put aftermarket wind-up keys on.

3: A fair second car that doesn’t take up much room in the driveway, usually tp only be hauled out when the kids have the family bus.



 
Written By: Bithead
URL: http://bitsblog.florack.us
I’m not claiming anything with respect to you signing on for a car payment and saving money. I’m responding to the claim that the difference in gas cost between a 15 and 30 mpg car is not even a single car payment. In fact, depending on the payment, it’s more like 3-6 payments as I have shown.

If you have a car getting 15 (or 17) mpg and it’s paid off, then sure I’d agree that your total cost is less than if you bought a new car getting 30mpg (although that depends on the current value of your truck too - whatever it’s worth offsets the price of a new car). At least until the cost of maintaining your current car exceeds the cost of a new car.

 
Written By: Grimshaw
URL: http://
"And if you really want see the auto industry hurting, have gas drop back under $3 in the next 18 months and they will be stuck with small cars they cant sell and SUV’s will once again fly off the lot with big profits with no production capacity available to produce them. I don’t expect that to happen,..."
I do.

Go long on SUV’s right now.
 
Written By: Billy Beck
URL: http://www.two—four.net/weblog.php
"They sold, not because they were serious transprtation,"

Sorry, but that is nonsense. It is also irrelevant. And you forgot the ’etc.’; Volkswagen isn’t the only one.
 
Written By: timactual
URL: http://
I’m not claiming anything with respect to you signing on for a car payment and saving money. I’m responding to the claim that the difference in gas cost between a 15 and 30 mpg car is not even a single car payment
Ummm.... perhaps I messed up somewhere, but where did you pick that idea up?

(although that depends on the current value of your truck too - whatever it’s worth offsets the price of a new car).
It was a $40g truck new. It’s got around 50g on it, Cherry shape. Every option they offered except for the sunroof. (power/heated Leather, Bose stereo/disk changer) plus some custom work, including tires brakes and some work on the computer. AWD, (not 4WD) Full arlam system, Onstar, etc. I’d say 24 grand is a safe bet, even in todays screwed up market.


 
Written By: Bithead
URL: http://bitsblog.florack.us
And jpm, are you saying that Toyota had some sort of magic that let them see the future more precicely? Ford’s been struggling due to the size of their vehicals (and the fuel-cost that goes with them)...
As was said, Toyota (and other Japanese maker’s) truck efforts blew up in their faces. The US was at least running on legacy product in that market segment.

So no, Toyota doesn’t have a crystal ball.

They do have two things.

1) Money to burn. The Prius was a niche market until the price of gas and Al Gore got going. The Prius is much older than either of those things (~’96). That niche project was a luck out for them.

2) A protected market where they can make an array of cars from which to draw.
Uh, no.

This has nothing to do with what sells today. This has to do with strategic planning and having in place contingencies to rapidly shift production to what will sell tomorrow.

Tomorrow’s here and guess who is just coming up with a slapped together plan?
What’s the price of gas going to be in 4 years? If you don’t know, tell me who does? If you can’t tell me who does, chances are there are no magical analysts who can.

To be flexible about it so you can rapidly shift has a considerable price tag associated with it. Most other markets are not aligned with our requirements for pollution, safety, and mileage. Add in tastes and various usages, and making a car for multiple markets can lead to compromises for a vehicle no one likes. The one market similar enough to the US market, US companies are denied access.

The auto companies were in the process of shifting and probably believed they could meet the shift adequately under a relatively normal cadence. But a large shift in what customers are buying only occurred only about 3-4 months ago.
You mean "their cars suck wang", right? :)

And yes, they do. After a HORRIBLE experiance with a "domestic" car, I will never own something that isn’t a Nissan, Toyota, or a Honda..
This is all perception. Can’t argue opinion.
The Ford move is not so much about realizing that they need to build and sell smaller cars in the US. The critical decision seems to be that they are going to start selling cars from their international units here in the US rather than develop small cars for the US market. This will bring small cars here much faster than the traditional Detroit approach, although it will still take a couple years.
I don’t believe that’s as easy as it sounds.

Work rules in Europe are very strict. You can’t just add overtime easily. There may even be laws against 2nd & 3rd shift, or at least government mandated premiums.

Not to mention that there is probably more government pressure for the automakers to produce low mileage (low C02) cars in Europe than here. Every car they make is likely spoken for. Cranking up production for the US market may not go over too well actually.
 
Written By: jpm100
URL: http://
What’s the price of gas going to be in 4 years?
Since the futures market is predicated on guessing such matters, it seems clear even the professionals knew the answer to that four years ago. All we knew at the time was a bunch of yahoos screaming about "peak oil" and how we’d already passed it...(Though I note today they’ve pushed that back perhaps another 20-30 years)

 
Written By: Bithead
URL: http://bitsblog.florack.us
I thought Ford already will with small cars. They bought Mazda a long time ago just for this reason.

Sounds like they are simply switching production now, which might be a tad slow, but it probably was decided much earlier.
 
Written By: Harun
URL: http://
Harun:

Unions.
Follow?
 
Written By: Bithead
URL: http://bitsblog.florack.us
Personally, I’d love to see Detroit’s big 2.4 go TU. They create a cr@ppy product, they prey on our "patriotism" to buy their cr@ppy product, they pander to the UAW thugs to keep the cr@ppy product rolling off the assembly lines.

They get fools like Teddy "the drunk" Kennedy to enact "domestic content" laws to enable the employment of the union thugs and thereby keep the cr@ppy product a-comin’.

It was a major mistake to bail out Chrysler in the 70s. But Congress shows again and again that our political leaders will pander to union demands. So, let ’em go into the trash heap and strike a blow against union thuggery AND a bunch of cr@ppy companies.







 
Written By: mark e. stevens
URL: http://
For perspective - Chevrolet just this week officially unveiled the production version of the 2010 Camaro (which will sell starting in the spring of 09,) which debuted in concept form at the North American International Auto Show in January 2006. This is a car using pretty much all proven technology. The concept was met with universal praise and adoration. Yet it will still have taken just over three years to go from concept to approval to production to dealerships - three years for a sure-fire hit based on technology they already have. At that time, gas was in the mid $2s per gallon. If the new Camaro’s production cycle takes that long, it really shouldn’t be a surprise that more fuel-efficient cars are still a ways up the pipeline (as they would require more R&D and are only now becoming a major consumer concern.)
 
Written By: James O
URL: http://
...blah blah blah personal opinion formed over 25 years ago reinforced by magazines who are afraid to not look objective by saying otherwise today...

It was a major mistake to bail out Chrysler in the 70s. But Congress shows again and again that our political leaders will pander to union demands. So, let ’em go into the trash heap and strike a blow against union thuggery AND a bunch of cr@ppy companies.
Compared to what? The mortgage bailout?

about 1.3 billion 1980 dollars which is about $3 billion today vs. $200 billion?

Except two large differences.

Much of the jobloss from Chrysler would not have been picked up and the government payout for unemployment and eventually welfare would have made that look cheap.

The $3 billion in today’s dollars was essentially a loan co-signing. No money went from the government to Chrysler at any point. They were loans by third parties that were never fully drawn upon and paid back in full.

Later Chrysler became, relative to its size, the most successful of the 3 auto companies. In fact their success allowed them create an eleven billion dollar rainy day fund to help protect themselves from such a situation in the future. Their success made them a juicy little takeover target that Daimler promptly bought, sucked dry the rainy day fund promptly with a proper cut going to the top execs who sold the acquisition. Then they proceeded to take the more successful of the three and run it into the ground and gut more money through forcing the Chrysler division to purchase material and parts through Daimler.

No way in hell the German government would have allowed any of that situation to play out in the reverse.
 
Written By: jpm100
URL: http://
Every car they make is likely spoken for. Cranking up production for the US market may not go over too well actually.
My comment wasn’t clear. My understanding is that Ford intends to build and sell European models here in the US, not import from Europe. That means they bypass most of the design phase and get them here faster. That only helps for this initial design/production cycle. After that I believe Mulally is looking to improve global corporate efficiency by reduce the product and design overhead. Not sure that will work, but he was hired to make these kind of decisions.
Chevrolet ... unveiled the production version of the 2010 Camaro ... It will still have taken just over three years to go from concept to approval to production to dealerships - three years for a sure-fire hit based on technology they already have ... If the new Camaro’s production cycle takes that long, it really shouldn’t be a surprise that more fuel-efficient cars are still a ways up the pipeline
The problem here is worse than noted. The Camaro is based on the Pontiac G8 platform, which is a rebadged Holden Commodore (GM Australia), a car that went on sale in Oz in 2006 after 5 years of development. That means there was nothing short about the Camaro development, it took the standard 5 years or more.
 
Written By: GBW
URL: http://

 
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