Growth in the U.S. market this year has surpassed Ford’s expectations, causing the auto maker to face capacity constraints, says Mark Fields, president-The Americas.
Fields, speaking this week at the Bank of America Merrill Lynch 2012 New York Auto Summit, says Ford originally planned for a U.S. seasonally adjusted annual rate in 2012 of 13.5 million-14.5 million units.
But with the close of the first quarter last month, the auto maker readjusted its estimate for the 2012 SAAR to 14.5 million-15 million units, including medium- and heavy-duty vehicles.
Although the auto maker plans to increase capacity in the second and third quarters, production until then “will be lower than demand for our products,” Fields says. “We had been planning for it to improve to this level, but it happened sooner than planned.”
Steps to boost capacity by some 400,000 units in the U.S. include manned production increases; adding shifts at plants in Chicago, Missouri, Kentucky and Michigan; and line increases at multiple plants, he says.
The capacity growth will not result in significantly higher labor costs, Fields says, noting Ford’s agreement with the United Auto Workers union limits such increases to less than 1% per year.
Most of the added jobs will be filled by legacy workers transferring from other plants, although some are expected to be new hires entering at the lower Tier 2 wage negotiated with the UAW.
Until the additional capacity comes online, Ford’s U.S. market share could decrease, Fields says, declining to reveal by how much. But the situation is not dire. The executive says the capacity shortage should help Ford maximize profit per unit.
“We’re going to take advantage of the opportunity to maximize profitability of available production. By Q4, assembly actions will be in place, and we expect to support higher industry volumes,” he says.
Ford faces different challenges in South America, which last year contributed $900 million of pretax profit to Ford’s coffers. Fields says new competitors have entered the market, threatening established auto makers in the region and driving down prices.
Escalating commodity costs, unfavorable exchange rates and regional trade pressures have exacerbated the problem, he says.
To that end, Ford is working to migrate its South American lineup to global products, rather than the region-specific vehicles it has offered in the past. The change in strategy should result in cost savings, he says.
“Starting last year, we began this transition from legacy to global products, and we’re expanding our market coverage,” Fields says, noting operating margins in the region likely will be lower this year.
New products launching in South America include the EcoSport cross/utility vehicle, Fusion midsize sedan and Fiesta B-car. Fields says 58% of the vehicles Ford offers in South America will be new or significantly refreshed this year.
The situation in Europe remains uncertain, he says, noting Ford expects a $500 million-$600 million loss this year. First-quarter results, which have yet to be officially announced, likely are the “same or worse” than the Q4-2011 loss of $190 million in Europe.
Still, the auto maker has posted profits in the 19 European markets in which it operates for six of the past eight years, Fields says.
Ford of Europe CEO Steven Odell “is making sure, from a cost standpoint, to look at everything,” Fields says. “We’re making sure we’re maximizing revenue and profitability and not chasing marginal business. We continue to look at how to be more efficient.”
The auto maker is in better shape in the Asia/Pacific region, where it is experiencing growth in countries such as China, Indonesia and Thailand.
Fields says Ford continues to grow in Asia/Pacific and expects full-year profits. However, Q1 may show a small loss due to expansion costs, including the recent opening of a plant in Chongqing, China.
