Ford Sees Margins Shrinking as Buyers Shift to Small Cars

[FordBuyer]

It is. Fewer options, lower transaction prices (due to fewer options) and in the case of GM's A & B, they have to survive on NA volume alone, while Ford's B car is sold throughout the Americas.

 

Ford is losing money in Europe and South America. Sonic has two engine options, and outsells Fiesta big time in North America. Sorry, but I would buy a Sonic over a Fiesta. I know that Ford is freshening up the Fiesta, and we will see. The Sonic is a nice, B segment vehicle. The Spark is way too small for my tastes, but Ford has no entry to match it. And say what you will about the Cruze, but three shifts build it in OH. And you could classify the Volt as a small car, and no super low lease deals in MI, and it sells well here. I see them all over the place.

[FordBuyer]

Okay, let's tackle that one:

 

The US has been launching rockets for roughly sixty years now.

 

Doing something, privately, that a state actor has been doing for sixty years is not remarkable. It's not like Musk built this in his backyard out of a stovepipe and some leftover firecrackers. He used the same contractors the government has been using for years. Basically the only thing that changed is the person signing the checks.

 

 

 

Musk, like Trump, needs no one to herald him. The man is a relentless and shameless self-promoter.

 

Wow, the first private company to ever accomplish such a feat, and you just act like it's nothing special. Unbelievable. He even beat mighty Boeing that has contract also. He is a hero of mine. I can't think of anyone more amazing than Elon Musk. Not even Steve Jobs when he was alive. I greatly admire Jobs, but Musk is even more amazing. A truly amazing industrialist and wish America had more like him. In fact, America desperately needs more like him.

[RichardJensen]

say what you will about the Cruze, but three shifts build it in OH.

So, let me get this straight.

 

 

According to you, GM's small car lines are better managed than Ford's, Cadillac is better managed than Lincoln, and yet--somehow--Ford's margins are 50% higher than GM's?

 

 

Do you have any kind of theory how this is possible?

[RichardJensen]

Wow, the first private company to ever accomplish such a feat, and you just act like it's nothing special.

Precisely. What does it matter if it's a private company or a government? It's just money.

[fordmantpw]

How about Space X, building a rocket and putting a payload up into space twice and bringing it safely back to earth plus building the most advanced EV in world? Not enough for you? What the hell does it take? Like it or not, he is a fascinating character like Henry Ford, and other industrialists from another era. Much more interesting than a guy like Trump whose claim to fame is inheriting real estate empire from Daddy, building gambling casinos, and Trump bottled water and chocolate. And we must not forget the gaudy, smarmy Trump Tower. Musk is a breath of fresh air and should be heralded.

 

He should be heralded because he has some great ideas, and has the ability to get venture capitalists to pour tons of money into something so that he can hire more technically intelligent people to build something very cool with no definite plans for turning a profit in the near future? OK.

[RichardJensen]

America desperately needs more like him.

People who lose money hand-over-fist?

[akirby]

Reading for content:

 

Jensen said:

 

"Mulally's point is that the market is headed toward smaller cars, cars with lower margins. GM's small car lineup is weak. "

 

Jensen called Chevy's small car lineup weak. I call it in some ways better than Ford. No mention of profit margin. And you don't know Chevy's small car profit margin. All we know is GM's is about 8% and Ford's 12% last quarter overall. But you guys interpret to mean that Ford is making money hand over fist and GM is losing money hand over fist and about to go bankrupt again. Not true. Sure, Ford is better managed, has fresher lineup, and is about two years ahead of GM in global platform sharing, but that doesn't mean GM is doing terrible and in dire straights either.

 

Here is the part you don't seem to understand. When your profit margin goes below 0 you are LOSING MONEY. Companies that continue to LOSE MONEY go bankrupt.

 

If Ford's profit margin goes from 12% to 8% where do you think GMs will go if they're already at 8%? 5%? 3%? 1%?

 

GM keeps small car sales volume high with fleet sales, high incentives and by financing sub 500 credit score buyers. And I guarantee that Ford's ATPs are higher because Fords have more options and fewer incentives. GM also has more fixed cost than Ford so lower ATPs hurt their profit margin more than Ford. It cost the same to keep a plant running regardless of whether that plant builds $18K B cars or $50k luxury cars.

 

 

I bet you think that as long as you have checks in your checkbook you have money to spend.

[akirby]

Ford is losing money in Europe and South America. Sonic has two engine options, and outsells Fiesta big time in North America. Sorry, but I would buy a Sonic over a Fiesta. I know that Ford is freshening up the Fiesta, and we will see. The Sonic is a nice, B segment vehicle. The Spark is way too small for my tastes, but Ford has no entry to match it. And say what you will about the Cruze, but three shifts build it in OH. And you could classify the Volt as a small car, and no super low lease deals in MI, and it sells well here. I see them all over the place.

 

So, by your logic - if Ford cuts the price of the Fiesta by $5k and sells 200K per year - they'd be winning because they sell more units?

 

Seriously???

[ausrutherford]

Uh, about two years ago or so, there was strong rumor that Ford put out that they were thinking about exporting Fusion wagon to U.S. That is not bullshit. It was posted on BOF also. Obviously Ford changed its mind, but is exporting TC Wagon from Spain instead I guess.

 

Ford always thinks of offering vehicles in the US, that never means they are approved and then they go back on their word. Fusion wagon was never seriously mentioned in Ford Na plans.

[aneekr]

It is. Fewer options, lower transaction prices (due to fewer options) and in the case of GM's A & B, they have to survive on NA volume alone, while Ford's B car is sold throughout the Americas.

 

In the U.S. market, GM's entries in the A, B, and C-segments are more numerous and offer more options than Ford's offerings. Exceptions: Ford offers a pure EV in these segments, which GM lacks. Also, Ford has a true sport compact (Focus ST) that also represents a lacuna in GM's U.S. lineup.

• GM: Spark ($12,995 - $16,720), Sonic ($14,995 - $22,280), Cruze ($17,925 - $24,345), Verano ($22,580 - $29,990)
  
• Ford: Fiesta ($13,995 - $18,995), Focus ($16,995 - $39,995)
  

Each model noted above from Ford and GM is sold globally. Some of the GM models (e.g., Sonic and Verano) are sold under different nameplates in other regions (Aveo, Astra, Excelle GT).

 

Regarding the lower transaction prices of GM's offerings compared to Ford's, perhaps it is due to the relative proportion of models & trim levels sold for each, and/or sales under special discount programs such as employee and supplier. As noted above the B and C segment GMs have higher sticker prices than the Ford counterparts (Focus Electric excepted). In Central Indiana and the Twin Cities, the Fords also currently offer larger cash incentives than the GMs - though this of course may not be true in other parts of the U.S.

Edited November 16, 2012 by aneekr

[aneekr]

GM's small car lines are better managed than Ford's, Cadillac is better managed than Lincoln, and yet--somehow--Ford's margins are 50% higher than GM's?

 

Do you have any kind of theory how this is possible?

 

All true; my theory for explaining the situation is that Ford runs a leaner, more efficient organization overall than GM does, despite GM's advantages in the specific segments you noted.

[jpd80]

One area Ford has worked extremely hard on is removing sub $20,000 vehicles to achieve higher average transaction prices,

how on earth does it benefit GM to compete head on with the likes of Hyundai in the basically scraps bin end of the market.

I much prefer Ford's plan of selling less and earning more per vehicle, something GM hasn't grasped with Chevrolet.

[RichardJensen]

B and C segment GMs have higher sticker prices

Irrelevant.

 

Further, to your point about the relative quality of management, I'd note that GM's per unit revenue was about $1k higher than Ford's last quarter, yet Ford's margin was significantly higher than GM's. And I do not believe that GM enjoys any advantages in the small car/CUV segment.

 

I don't believe they have any cost advantages in terms of materials, labor is a wash, amortization almost certainly favors Ford, and ATPs favor Ford.

 

They have more sales, but more sales and more revenue per sale (undoubtedly driven by Cadillac & the fullsize SUVs) have not translated into better margins than Ford.

Edited November 16, 2012 by RichardJensen

[twintornados]

Ford has to take this route. I recall reading that Ford cannot compete directly with the Koreans on price, and it certainly can't compete with the Chinese on price when they enter the American market. It has to build more desirable vehicles that sell on the basis of style, features and quality, not just price.

The price is forgotten after the sales transaction is completed but quality, features and style will continue long after the car is over the curb....

[FordBuyer]

 

Irrelevant.

 

Further, to your point about the relative quality of management, I'd note that GM's per unit revenue was about $1k higher than Ford's last quarter, yet Ford's margin was significantly higher than GM's. And I do not believe that GM enjoys any advantages in the small car/CUV segment.

 

I don't believe they have any cost advantages in terms of materials, labor is a wash, amortization almost certainly favors Ford, and ATPs favor Ford.

 

They have more sales, but more sales and more revenue per sale (undoubtedly driven by Cadillac & the fullsize SUVs) have not translated into better margins than Ford.

 

No one is arguing that Ford is not better managed, more profitable, and about two years ahead in globabl platform sharing. So give it a break. All that is being said is that GM is not a basket case either. It needs a better CEO, and one that will be around for awhile, and needs to catch up in global platform sharing. All in all, however, GM is performing pretty well.

[silvrsvt]

All in all, however, GM is performing pretty well.

 

Till something serious happens to the economy again...then'll be in the same boat they where a few years back without any options left.

[FordBuyer]

 

 

Till something serious happens to the economy again...then'll be in the same boat they where a few years back without any options left.

 

I would agree that GM certainly needs its own credit arm like it used to have, and this time staying clear of home mortgage business. Ford has another advantage in that it kept Ford Credit and sold off its mortgage business years before credit crisis hit. Ford Motor Credit is a profit powerhouse for Ford. However, I disagree that GM will have same problem if economy tanks again. Its much leaner after going through bankruptcy, and doesn't even manage salaried retiree pension fund anymore, or run retiree hourly worker health care program. And GM has lower wage production workers this time around, and that percentage will only grow each year as old timers retire. GM used to be basically an entitlement social welfare company that happen to make substandard vehicles, but is now a full fledged auto company again that makes competitive vehicles for a profit. Big difference this time around. GM also like Ford is doing better with retail sales and less reliant on fleet sales, and does manage its inventory better.

[akirby]

I would agree that GM certainly needs its own credit arm like it used to have, and this time staying clear of home mortgage business. Ford has another advantage in that it kept Ford Credit and sold off its mortgage business years before credit crisis hit. Ford Motor Credit is a profit powerhouse for Ford. However, I disagree that GM will have same problem if economy tanks again. Its much leaner after going through bankruptcy, and doesn't even manage salaried retiree pension fund anymore, or run retiree hourly worker health care program. And GM has lower wage production workers this time around, and that percentage will only grow each year as old timers retire. GM used to be basically an entitlement social welfare company that happen to make substandard vehicles, but is now a full fledged auto company again that makes competitive vehicles for a profit. Big difference this time around. GM also like Ford is doing better with retail sales and less reliant on fleet sales, and does manage its inventory better.

 

GM is in much better shape than it was 4 years ago. No doubt about that. But they aren't in nearly as good shape as they should be or could be. They still have at least 1 totally unnecessary brand (GMC). Their small cars are still being overproduced and pushed out the door with incentives and high risk loans. They have too much overhead because they're still trying to be #1 in sales regardless of profit.

 

Mulally made a mandate that every vehicle they sell is profitable on its own or they won't sell it. They're no longer subsidizing vehicles that lose money (like the old Focus) with cash cows like full sized trucks.

 

If GM is making decent profit margins on their smaller vehicles then that's great. But if you consider their current profit margin is only 8% and you know their cash cows are probably bringing in double digit margins then it's not a leap to assume that their small vehicles, while posting good sales numbers, are either barely turning a profit or individually they are actually losing money.

 

Shift sales to these smaller vehicles and cut sales of their cash cows (full sized trucks) and let's see if they can stay in the black or not.

 

Ford has half the employees of GM and I'm guessing less factories as well. Their plants are operating at 114% of capacity while GM is probably less than 80%. Yet Ford sells almost as many vehicles each month as GM with so much less overhead. And those are fixed costs - they don't go away immediately if you stop producing as many vehicles.

 

Ford is going for higher ATPs with more expensive options and premium vehicles. GM is trying to be everything to everybody with cheap Chevys and expensive Buicks and Caddys. All this combined is why GM's profit margin is so much lower than Ford's right now.

 

And that's why GM is far more susceptible to a market shift or downturn. It has absolutely nothing to do with how many cars they sell - it has to do with how much money they're making and on which vehicles and how much overhead they have.

[jpd80]

I doubt we'll see another credit crunch like the one that happened in 2008, GM is also relieved of its previous heavy debt load and regardless of comparisons with Ford,

GM is for the most part is producing substantial revenue and profit, the main differences centre around the comparative internal the efficiencies of the two companies.

Both companies are heavily reinvesting in product and infrastructure in strategic markets, this is the main reason why profit percentages seem a little lower than expected.

Edited November 16, 2012 by jpd80

[FordBuyer]

 

 

GM is in much better shape than it was 4 years ago. No doubt about that. But they aren't in nearly as good shape as they should be or could be. They still have at least 1 totally unnecessary brand (GMC). Their small cars are still being overproduced and pushed out the door with incentives and high risk loans. They have too much overhead because they're still trying to be #1 in sales regardless of profit.

 

Mulally made a mandate that every vehicle they sell is profitable on its own or they won't sell it. They're no longer subsidizing vehicles that lose money (like the old Focus) with cash cows like full sized trucks.

 

If GM is making decent profit margins on their smaller vehicles then that's great. But if you consider their current profit margin is only 8% and you know their cash cows are probably bringing in double digit margins then it's not a leap to assume that their small vehicles, while posting good sales numbers, are either barely turning a profit or individually they are actually losing money.

 

Shift sales to these smaller vehicles and cut sales of their cash cows (full sized trucks) and let's see if they can stay in the black or not.

 

Ford has half the employees of GM and I'm guessing less factories as well. Their plants are operating at 114% of capacity while GM is probably less than 80%. Yet Ford sells almost as many vehicles each month as GM with so much less overhead. And those are fixed costs - they don't go away immediately if you stop producing as many vehicles.

 

Ford is going for higher ATPs with more expensive options and premium vehicles. GM is trying to be everything to everybody with cheap Chevys and expensive Buicks and Caddys. All this combined is why GM's profit margin is so much lower than Ford's right now.

 

And that's why GM is far more susceptible to a market shift or downturn. It has absolutely nothing to do with how many cars they sell - it has to do with how much money they're making and on which vehicles and how much overhead they have.

 

 

You keep stating that GM has twice the employees that Ford has when GM Tech is just as deserted as Ford's Dearborn campus is. GM headquarters in Downtown Detroit is not much better. Prove it. How many total Ford employees in U.S. compared to GM? Certainly GM needs more employees to run four divisions to Ford's 1.25 if you consider Lincoln's anemic sales. GM may have twice the salariied employess maybe, but I doubt in total if you add in production. I will guess 90,000 employees for Ford and about 135,000 employees for GM.

[SoonerLS]

Uh, about two years ago or so, there was strong rumor that Ford put out that they were thinking about exporting Fusion wagon to U.S. That is not bullshit. It was posted on BOF also. Obviously Ford changed its mind, but is exporting TC Wagon from Spain instead I guess.

If we assume that Ford actually put out such a rumor, the fact that they didn't actually import such vehicles indicates that your assumption that people would buy them is faulty. Maybe some people would (though that has to be a vanishingly small number of people, given the dearth of wagons in the US market), but Ford obviously thinks there won't be enough to make it worth their while. So, yes, it's bullshit.

[NickF1011]

You keep stating that GM has twice the employees that Ford has when GM Tech is just as deserted as Ford's Dearborn campus is. GM headquarters in Downtown Detroit is not much better. Prove it. How many total Ford employees in U.S. compared to GM? Certainly GM needs more employees to run four divisions to Ford's 1.25 if you consider Lincoln's anemic sales. GM may have twice the salariied employess maybe, but I doubt in total if you add in production. I will guess 90,000 employees for Ford and about 135,000 employees for GM.

 

There you go not looking past the end of your nose again.

 

164,000 vs 207,000.

 

That's total employees.

Edited November 16, 2012 by NickF1011

[jpd80]

Well, I think Fields is foxing and that Ford is now making much more profit off C and D cars than they let on..most are well optioned vehicles.

Ford doesn't sell many B car but what they do are mostly optioned up examples (Ford sales personnel may be able to confirm)

[Biker16]

heres one...Transit Connect...........

 

but Borg says it won't sell

 

So Escapes are selling for roughly $4200 more, and Fusions $3700 more than the outgoing models, good work Ford. Couple items I'd like to know that the article could have elaborated a little more on:

1. How much is it costing Ford to build these two models? If they cost $2K more to build than the outgoing model (just throwing out a figure), then the ATP doesn't look as good, since it costs more to build in the first place, eating up some of that higher ATP.
   
2. Are they comparing the increased ATP on the past year sales, when incentives were higher on the outgoing models and these vehicles were selling for lower ATP's to reduce stock and make room for the new models?
   

Of course if it costs more to build, meaning you have to sell for a higher price, and the prior model had a lot of cash on the hood to move those units, then those items will inflate the $4200/$3700 figures.

 

the costs of that new assembly plant loom large over all first gen models built in those plants.

 

I feel the costs to build the focus and escape are in some cases lower than the out going models in other more expensivie than the outgoing models. think of the use of ultra high strength steel, and more complex assembly procedures for greater variety of product being built. The heavy use of globally sourced parts, would keep those costs down, and higher commonality between the Focus, escape, Fusion and C-max have phenomenal Economies of Scale.

[jpd80]

but Borg says it won't sell

 

 

 

the costs of that new assembly plant loom large over all first gen models built in those plants.

 

I feel the costs to build the focus and escape are in some cases lower than the out going models in other more expensivie than the outgoing models. think of the use of ultra high strength steel, and more complex assembly procedures for greater variety of product being built. The heavy use of globally sourced parts, would keep those costs down, and higher commonality between the Focus, escape, Fusion and C-max have phenomenal Economies of Scale.

This.

The telltale of profitability is that Ford chose to build Focus in the USA, Ford wouldn't have done that if the returns were marginal..

Edited November 16, 2012 by jpd80