It has been a while since we’ve talked about automobile inventory. A year or two ago there was a lot in the press about automakers in the US finding religion and keeping better control over their inventories. The argument was that greater labor flexibility for the US makers would allow them to keep from accumulating cars and being forced to offer margin-trashing incentives. (See, for example, this post and that post.)
With that background, check out this graphic from today’s Wall Street Journal (Small Cars Test Ford Resolve, Jan 11):
So Ford has a lot of small cars. As the article notes, the party line in the industry is that 60 days is the “right” amount of inventory. Ford currently has 126 days of Fiestas and 92 days of Focuses (or should that be Foci?).
Here is the author discussing Ford’s problem.
It should be noted that both of these are not the Detroit compacts that you remember and likely abhor. Generally, these vehicles have been well reviewed and selling at or near their MSRP.
Jessica Caldwell, an analyst for car research site Edmunds.com, said Ford has been sticking to its pricing on both the Focus and Fiesta, staying away from large discounts, subsidized leases and other incentives. The result is that the average price customers pay for a Focus, $20,589, is higher than the average prices paid for all other competing models except Volkswagen AG’s Jetta, according to Edmunds. Historically Detroit’s passenger cars have fetched lower prices that import-brand models. The Fiesta’s average price is higher than all rivals except the Honda Motor Co. Fit, Edmunds’s data show.
“That has led to more profitability for Ford, but it may have been at the expense of having lower sales than they expected,” Ms. Caldwell said.
Profit margins for its North American region averaged 10% last year, boosting Ford’s performance. Mr. Fields said Ford expects to either maintain or grow that 10% margin in 2012.
Of course, growing inventory and full price sales are not mutually agreeable over a long time frame. At some point something has to give. If demand doesn’t pick up (which may happen with, say, Iranian saber rattling and rising gas prices), Ford will have to cut production or price. My bet is they will trim production. Aggressively discounting — even if it is the more profitable option — will likely bring too much negative press.
Another option would be to export cars, which I don’t think they are doing much of currently. The video gets into a discussion of the role small cars play in Ford’s global strategy. That is all true but a bit of a distraction from the topic at hand if Ford does not export from its US factories. Ford is currently expanding overseas and the success of those plants will depend on having attractive small vehicles. But that has no impact on its US inventories if, say, Asian markets are served only by Asian factories.