DETROIT - Ford Motor Co. says it will announce reductions in capacity by the end of the year. General Motors also will pursue capacity reductions
North American plant closings are likely at Ford, given its production patterns and falling market share. Vastly underused plants in Wixom, Mich., and St. Louis seem most vulnerable. But Ford officials wouldn't talk specifics.
"We realize we have excess capacity, and we will update you on our plans on that area later this year," Ford CFO Don Leclair said Tuesday, July 19, during Ford's second-quarter earnings conference call. "We continue to work on all elements of our cost structure, and, as we said in April, nothing is off the table."
Ford COO Jim Padilla has said Ford's North American capacity utilization is about 75 percent. He emphasized that the automaker will fulfill its obligations to hourly workers.
The Wixom plant, in suburban Detroit, is down to one shift and is losing products fast. Ford ended Thunderbird production there July 1. Ford continues to build the Lincoln LS and Town Car and the Ford GT.
Ford's Explorer plant in St. Louis also is running on a single shift. Explorer sales have plunged this year, creating frequent shutdowns for St. Louis and another Explorer plant in Louisville, Ky.
Things in the works
Ford already has shutdowns in the works. They include the closing of the Lorain, Ohio, plant this year and the ongoing phase-out of Jaguar's Browns Lane plant in England.
Leclair said the plan under development addresses Ford's global operations and is not limited to North America.
In North America, union contracts limit the extent to which Ford can trim plants. Ford is negotiating with the Canadian Auto Workers this summer to replace a contract that expires in September.
The automaker's two Canadian assembly plants also are underutilized. But Ford already has committed to an $821 million investment at its Oakville, Ontario, plant.
But the current UAW pact does not expire until 2007. Still, Ford could identify plant closure targets ahead of that date.
Because overcapacity pinches vehicle margins, Ford and GM are under pressure to better coordinate production and market demand. "The excess capacity in the industry in part is at the root of the downward pressure on prices," Leclair said. "Each individual manufacturer has to respond as they see fit."
GM plans 10% cut
GM, reeling from a $1.19 billion second-quarter loss in North America, says it wants to reduce North American production capacity by about 10 percent. That works out to about 500,000 units per year, CFO John Devine said.
GM cut its vehicle production in North America by 142,000 vehicles, about 10 percent, in the second quarter and is sticking with plans for a 9 percent cut this quarter.
Lower production was the chief reason for the loss in North America, Devine said.
Even when plants are idle, GM still pays a portion of union workers' wages.
Devine said GM has reduced its capacity, but added: "There's a lot more to do. There are things we can do to create flexibility in plants that will help us capture excess capacity."
In the second quarter, GM ran at 92.4 percent capacity in North America, compared with 91.1 percent a year earlier.
Full capacity is defined as two eight-hour shifts running 235 days year, multiplied by the capacity line rate per hour, according to the Harbour Report, a study of productivity.
"We should be running over 100 percent," Devine said.
He declined to name plants that might be affected.
In June, GM CEO Rick Wagoner said the automaker expects to cut 25,000 employees over the next three years. That number roughly equals the company's recent rate of annual attrition.