Ford's health plan: Slim down inventory

DETROIT -- Ford Motor Co. is determined to avoid a glut of unsold cars and trucks piling up on dealer lots by trimming production -- even if U.S. vehicle volumes are relatively healthy compared with the rest of the industry.

Ford had a 78 days supply of vehicles at the end of February, down 17 days compared with a month earlier. At the start of March, all but four of the company's nameplates had seen month-over-month declines in days supply, according to the Automotive News Data Center. Ford's sales were down 2.5 percent through February.

Still, CFO Bob Shanks warned analysts and investors, "don't be surprised" if Ford cuts production or temporarily idles assembly lines across North America in the coming months. It's a strategy meant to avoid bloated inventory, but will also eat into revenue. 

"Closing a plant down for a week or reducing a shift reduces the amount of vehicles made and therefore reduces revenue," Dave Sullivan, manager of product analysis at forecasting firm AutoPacific, told Automotive News. "That's what makes it dangerous; when you know your revenue is what you push out the door. If there is no demand, you can continue to push, and that's when bad things happen."

The likeliest candidates to see added downtime will be some of Ford's car plants, including Michigan Assembly in Wayne and Cuautitlan Assembly in Mexico. 

Ford's overall car inventory was at 73 days supply, down from 98 the month before. That's partly because of high incentives on many car models and recent added downtime. 

Late in 2016, Ford temporarily shuttered five factories in North America, including its Flat Rock Assembly Plant to cut down on Mustang stock. During the first week of 2017, Ford idled its Kansas City Assembly Plant as it tried to pare down its F-150 pickup and Transit van inventory. 

Sullivan suggested Kansas City could be due for more cuts, although F-series inventory fell from 108 days supply at the beginning of February to 97 days supply at the start of March, and Transit inventory dropped from 97 days to 77 days supply during that same stretch. 

The production-cut warning came as Shanks predicted Ford's first quarter will be especially impacted because of launch costs and other expenses. 

Ford said last week it expects a full-year pretax profit of $9 billion, down from $10.4 billion in 2016, as it invests in autonomous cars and new mobility services. 

The automaker expects earnings per share of 30 cents to 35 cents in the first quarter, down from the same period last year. 

The automaker still expects that its 2018 financials will rise, and be higher than the $10.4 billion it earned in 2016.