Ford CEO Jim Farley Says Build To Order Paradigm Is Company’s Future

[rmc523]

On 7/30/2021 at 8:52 AM, silvrsvt said:

https://fordauthority.com/2021/07/ford-ceo-jim-farley-says-build-to-order-paradigm-is-companys-future/

 

 

 

 

This should be interesting how this plays out...lots of people can't even figure out what they want for dinner the next day or plan for anything and I think some people might balk at having to wait for a vehicle to be delivered to them.

 

Personally I've ordered every single new car I've bought...so doesn't matter to me. 

 

Agreed, they'll have to figure out the tipping point of too little inventory and not enough ordering.  And it'll only take one manufacturer to start loading up inventory and incentives for the rest of them to follow.

 

On 7/30/2021 at 8:59 AM, twintornados said:

Well, since my Bronco order has been in since January...hows about ya build mine?!?!

 

Lol, I have another year to wait, so I don't feel bad for you  ?

 

On 7/30/2021 at 9:53 PM, jpd80 said:

I think what’s needed is better inventory build profile, vehicles that more closely match what

customer orders and dealer orders have been asking for, not just what Ford wants to build.

 

For sure, and reducing build combos can help with that as well.

[ice-capades]

8 hours ago, rmc523 said:

Agreed, they'll have to figure out the tipping point of too little inventory and not enough ordering.  And it'll only take one manufacturer to start loading up inventory and incentives for the rest of them to follow.

 

For sure, and reducing build combos can help with that as well.

 

The microchip shortage isn't going to evaporate any time soon. It appears the situation will improve soon for Ford and the automotive segment but Intel's CEO thinks it could take until 2023 before there's enough production capacity again to meet the demand from all the market segments. Part of the solution is increasing production outside Taiwan but it takes over a year to build new facilities and get them into production. Intel is investing $20B in two new plants in AZ but it'll be 2023 before they're up and running. 

 

The automotive manufacturers have finally been able to break the incentive/rebate situation that GM started in 1986. It's going to take both changes and discipline for them to learn from the past and apply the recent lessons learned from the benefits of managing reduced inventory and incentives and the resulting positive impact on profits. Those same benefits have also impacted the reduced floorplan expenses and profits at the dealership level. Both the OEM's and dealerships need to seize the opportunity and commit to making inventory management changes that will benefit them both long term instead of making the continued short-term decisions that have been so expensive.

 

The subject of reducing the "build combos" is an old subject and just never seems to get better. If anything, it keeps getting worse and the priorities at Ford and its dealerships are often in conflict. Ford basically knows what it can build based on plant and supplier capacity but has often prioritized its objective over both market and customer demand in order to maximize profits even though it may mean lower plant utilization and lost market share. In order to be successful at working with reduced inventory and improved profit margins, Ford absolutely needs to simplify the ordering process. Customers placing retail factory orders often want as many free-standing options as possible but doing so increases the complexity of dealing with manufacturing issues, commodity restraints, etc. The more build combinations available, the more complex the ordering, scheduling, supplier and commodity issues become along with all the time involved in dealing with all the related issues.      

[akirby]

1 hour ago, ice-capades said:

 

The microchip shortage isn't going to evaporate any time soon. It appears the situation will improve soon for Ford and the automotive segment but Intel's CEO thinks it could take until 2023 before there's enough production capacity again to meet the demand from all the market segments. Part of the solution is increasing production outside Taiwan but it takes over a year to build new facilities and get them into production. Intel is investing $20B in two new plants in AZ but it'll be 2023 before they're up and running. 

 

The automotive manufacturers have finally been able to break the incentive/rebate situation that GM started in 1986. It's going to take both changes and discipline for them to learn from the past and apply the recent lessons learned from the benefits of managing reduced inventory and incentives and the resulting positive impact on profits. Those same benefits have also impacted the reduced floorplan expenses and profits at the dealership level. Both the OEM's and dealerships need to seize the opportunity and commit to making inventory management changes that will benefit them both long term instead of making the continued short-term decisions that have been so expensive.

 

The subject of reducing the "build combos" is an old subject and just never seems to get better. If anything, it keeps getting worse and the priorities at Ford and its dealerships are often in conflict. Ford basically knows what it can build based on plant and supplier capacity but has often prioritized its objective over both market and customer demand in order to maximize profits even though it may mean lower plant utilization and lost market share. In order to be successful at working with reduced inventory and improved profit margins, Ford absolutely needs to simplify the ordering process. Customers placing retail factory orders often want as many free-standing options as possible but doing so increases the complexity of dealing with manufacturing issues, commodity restraints, etc. The more build combinations available, the more complex the ordering, scheduling, supplier and commodity issues become along with all the time involved in dealing with all the related issues.      

Much like Covid has enlightened executives who now realize employees can work from home and be just as productive, the microchip shortage has shown executives that building desirable vehicles and limiting production can generate just as much (if not more) profit at higher margins.

 

Having 2 or 3 different vehicles at the same plant in MAP and Hermosillo helps tremendously.  They can adjust shifts and mix to match the market.  If you only have one vehicle (not counting Lincoln counterparts) like CAP, Louisville or Oakville then you have to keep sales up to keep the plant operating efficiently which leads to incentives.  I think BEVs will help a lot being able to do multiple top hats on the same basic chassis.

 

But it will take Farley staying disciplined and to make sure employee compensation is tied to the right metrics to keep it up.

 

[mackinaw]

2 hours ago, ice-capades said:

The automotive manufacturers have finally been able to break the incentive/rebate situation that GM started in 1986. .....

 

The modern rebate era probably started back in 1975, when Chrysler started their "buy a car, get a check campaign."  During the Super Bowl if I'm correct.  Joe Garagiola was the spokesman.

[ice-capades]

38 minutes ago, akirby said:

Much like Covid has enlightened executives who now realize employees can work from home and be just as productive, the microchip shortage has shown executives that building desirable vehicles and limiting production can generate just as much (if not more) profit at higher margins.

 

Having 2 or 3 different vehicles at the same plant in MAP and Hermosillo helps tremendously.  They can adjust shifts and mix to match the market.  If you only have one vehicle (not counting Lincoln counterparts) like CAP, Louisville or Oakville then you have to keep sales up to keep the plant operating efficiently which leads to incentives.  I think BEVs will help a lot being able to do multiple top hats on the same basic chassis.

 

But it will take Farley staying disciplined and to make sure employee compensation is tied to the right metrics to keep it up.

 

I agree with most of what you've said but have to question what employee compensation has to do with it. The employees are paid to do a job whether it's assembling ICE or BEV vehicles and are paid well even when plants are down. It's acknowledged that BEV vehicles will be less labor intensive yet the UAW is understandably trying to protect their interest by maintaining the current UAW staff levels. Ford, GM and the other domestic OEM's will unfortunately continue to cave in to whatever the UAW demands, which they've done repeatedly for decades now, because of the dreaded fear of a prolonged strike which hasn't happened in decades. 

 

Yes, Farley has to stay disciplined but what "metrics" are involved regarding employee compensation remains to be seen. The situation was changed years ago when the domestic manufacturers agreed that any future facilities would be part of UAW collective bargaining agreements. The companies should never have agreed to giving the UAW blanket inclusion in future facilities without going through the traditional and established NLRB processes and they'll now never be able to get out of it. Just look at when Boeing needed to expand production for commercial aircraft and, because of the long history of problems with the unions representing workers in Everrett, WA, built a new non-union facility in SC.  

[ice-capades]

13 minutes ago, mackinaw said:

 

The modern rebate era probably started back in 1975, when Chrysler started their "buy a car, get a check campaign."  During the Super Bowl if I'm correct.  Joe Garagiola was the spokesman.

 

It was really started by General Motors in 1986.

[Donaldo]

On 7/30/2021 at 7:24 AM, rperez817 said:

 

It is great news for Ford, Ford dealers, and Ford customers. For too long, Ford has struggled with production and inventory planning, its dealers had floor plan expenses that could have been avoided, and customers often bought Ford vehicles for the "deal" rather than for the merits of the product. This led to a vicious cycle where the quantity of sales overrode the quality of sales.

 

With good online tools for configuring, ordering, and tracking new vehicles by customers and dealers, Farley's build to order paradigm should bring Ford into the "new world" of the automotive industry that Jim Hackett talked about a few years ago.

This story reminds me of car dealers in Japan. Because of the value of the land there, most of them only have a handful of vehicles on a lot for test drives, (like "mannequins')  and buyers order what they want. I think new car dealers in many European countries may be similar?  Interestingly USA,  the Japanese makers have just the opposite approach. Dealers or regional distributors spec what they want stocked and manufacturers build to those specs. Individual options/trims are minimized. They typically make it difficult for the  buyers to build to order.  It would be interesting to see if build to order really fits a high volume sales model. There are probably many customers who are accustomed to impulse buying and don't want to use a computer to configure a vehicle. 

[akirby]

1 hour ago, ice-capades said:

 

I agree with most of what you've said but have to question what employee compensation has to do with it. The employees are paid to do a job whether it's assembling ICE or BEV vehicles and are paid well even when plants are down. It's acknowledged that BEV vehicles will be less labor intensive yet the UAW is understandably trying to protect their interest by maintaining the current UAW staff levels. Ford, GM and the other domestic OEM's will unfortunately continue to cave in to whatever the UAW demands, which they've done repeatedly for decades now, because of the dreaded fear of a prolonged strike which hasn't happened in decades. 

 

Yes, Farley has to stay disciplined but what "metrics" are involved regarding employee compensation remains to be seen. The situation was changed years ago when the domestic manufacturers agreed that any future facilities would be part of UAW collective bargaining agreements. The companies should never have agreed to giving the UAW blanket inclusion in future facilities without going through the traditional and established NLRB processes and they'll now never be able to get out of it. Just look at when Boeing needed to expand production for commercial aircraft and, because of the long history of problems with the unions representing workers in Everrett, WA, built a new non-union facility in SC.  

I’m specifically talking about management, especially mid to upper level.  If you tie their compensation to units sold then they’ll do everything possible to maximize units sold without regard to profit or customer satisfaction.  He needs to set company wide metrics that measure and reward efficiency, profit margin, etc and punish bad results like incentives.  

[akirby]

46 minutes ago, Donaldo said:

This story reminds me of car dealers in Japan. Because of the value of the land there, most of them only have a handful of vehicles on a lot for test drives, (like "mannequins')  and buyers order what they want. I think new car dealers in many European countries may be similar?  Interestingly USA,  the Japanese makers have just the opposite approach. Dealers or regional distributors spec what they want stocked and manufacturers build to those specs. Individual options/trims are minimized. They typically make it difficult for the  buyers to build to order.  It would be interesting to see if build to order really fits a high volume sales model. There are probably many customers who are accustomed to impulse buying and don't want to use a computer to configure a vehicle. 

In 1991 we bought a Honda Accord.  DX, LX or Ex with dealer installed A/C.  That was it.  Now we have a lot more options today but they can still be packaged together for dealer stock.  Ignore the base models that are really only for fleet sales.  Build 2 or 3 stock option levels like they tried to do with Bronco - reg, mid and luxury.   Limit to 5 or 6 colors with 1 or 2 interior options with standard wheels and let dealers swap wheels.  Then allow custom orders with more colors and the ability to custom order most options or at least more flexibility on option packages and moonroofs, towing, etc.  if you could promise special orders in 3-4 weeks this could work but that’s going to be difficult with rail transportation and supplier commodity issues,  With this model a custom order would essentially be given a 1 priority based on order date with no allocation required.

[fuzzymoomoo]

3 hours ago, akirby said:

Having 2 or 3 different vehicles at the same plant in MAP and Hermosillo helps tremendously.  They can adjust shifts and mix to match the market.

This will save a plant like FRAP that is already on life support and I get the impression we will see them implement this there within the next few years. 

[fuzzymoomoo]

2 hours ago, ice-capades said:

paid well even when plants are down.

Only about 30% of that comes from Ford. The rest is from the state unemployment agency and the total is only about 75% of our regular pay. 

[RedHoncho01]

The pandemic has upended practically every business and their standard practices from months long shutdowns to the riptides of supply chain issues.  It is a good time to reevaluate as things are still on semi-pause.  This gives businesses a chance to change their business models and adjust them on the fly without having to completely pause everything and upset their customers more.

 

In March 2020, I found a 2019 CPO Lincoln Nautilus as a dealership 90 miles from my home.  It was perfectly configured for me and the price was right.  Most of the deal was conducted via text message with my salesman.  After agreeing that I would  purchase the vehicle based upon a test drive, the dealer agreed to deliver the vehicle to my home.  I test drove it and agreed to purchase it.  All the paperwork was signed in my driveway.

 

In July, I had the Nautilus in for service and noticed a really nice Corsair and asked to test drive it.  I liked the vehicle and wanted to purchase it.  However, due to very low inventory, the dealership wasn't allowing Z plan discounts on their stock inventory.  I was told in order to get the discount I had to order one.  So, on July 5 I did just that.  I have it configured exactly the way I want.  The plant that produces the Corsair was on shutdown due to microchips and didn't resume production until July 19.  I received word this week that my vehicle has a build schedule of the week of September 6.  According to my salesman, I should have it by the end of September.

[mackinaw]

4 hours ago, ice-capades said:

It was really started by General Motors in 1986.

 

Nope.  Modern day rebates started back in 1975.  Read this NYT piece from 1981.  

 

https://www.nytimes.com/1981/02/18/business/gm-and-ford-offer-cash-rebates-that-are-largest-ever-for-industry.html

[akirby]

2 hours ago, RedHoncho01 said:

The pandemic has upended practically every business and their standard practices from months long shutdowns to the riptides of supply chain issues.  It is a good time to reevaluate as things are still on semi-pause.  This gives businesses a chance to change their business models and adjust them on the fly without having to completely pause everything and upset their customers more.

 

In March 2020, I found a 2019 CPO Lincoln Nautilus as a dealership 90 miles from my home.  It was perfectly configured for me and the price was right.  Most of the deal was conducted via text message with my salesman.  After agreeing that I would  purchase the vehicle based upon a test drive, the dealer agreed to deliver the vehicle to my home.  I test drove it and agreed to purchase it.  All the paperwork was signed in my driveway.

 

In July, I had the Nautilus in for service and noticed a really nice Corsair and asked to test drive it.  I liked the vehicle and wanted to purchase it.  However, due to very low inventory, the dealership wasn't allowing Z plan discounts on their stock inventory.  I was told in order to get the discount I had to order one.  So, on July 5 I did just that.  I have it configured exactly the way I want.  The plant that produces the Corsair was on shutdown due to microchips and didn't resume production until July 19.  I received word this week that my vehicle has a build schedule of the week of September 6.  According to my salesman, I should have it by the end of September.

What made you switch so soon?  I ask because we’ll be replacing our MKX in a year or so and I’m leaning towards a Corsair.

[Gurgeh]

1 hour ago, akirby said:

What made you switch so soon?  I ask because we’ll be replacing our MKX in a year or so and I’m leaning towards a Corsair.

While I can't yet consider a BEV because I can't do overnight charging where I live (that will likely change when I move in a year or two), have you considered taking a look at the reported MKX/Nautilus-sized BEV Lincoln crossover that is supposed to come out next year?

[HotRunrGuy]

2 hours ago, akirby said:

What made you switch so soon?  I ask because we’ll be replacing our MKX in a year or so and I’m leaning towards a Corsair.

34 minutes ago, Gurgeh said:

While I can't yet consider a BEV because I can't do overnight charging where I live (that will likely change when I move in a year or two), have you considered taking a look at the reported MKX/Nautilus-sized BEV Lincoln crossover that is supposed to come out next year?

 

As of a couple of months ago, he was going to need much more range than is currently available,,,

 

HRG

[akirby]

49 minutes ago, Gurgeh said:

While I can't yet consider a BEV because I can't do overnight charging where I live (that will likely change when I move in a year or two), have you considered taking a look at the reported MKX/Nautilus-sized BEV Lincoln crossover that is supposed to come out next year?

Not interested in a BEV yet since this is our travel vehicle.  I would consider a BEV truck though since I rarely drive more than 50 miles per day.

[akirby]

22 minutes ago, HotRunrGuy said:

 

As of a couple of months ago, he was going to need much more range than is currently available,,,

 

HRG

It’s less about range and more being able to get a 300 mile public charge in almost any city in 15 minutes or so.

[sullynd]

25 minutes ago, akirby said:

It’s less about range and more being able to get a 300 mile public charge in almost any city in 15 minutes or so.

Why?

 

I’ve never worried about fully charging my Mach-E while traveling - at least not while on the road - getting to “full” is just what we’re used to with ICE.  I can go from 40-80% range in about 20-25 minutes.  I’d rather stop for 10-15 minutes and get what that gives me, maybe twice, and then charge fully at my destination. 

[CurtisH]

2 hours ago, sullynd said:

Why?

 

I’ve never worried about fully charging my Mach-E while traveling - at least not while on the road - getting to “full” is just what we’re used to with ICE.  I can go from 40-80% range in about 20-25 minutes.  I’d rather stop for 10-15 minutes and get what that gives me, maybe twice, and then charge fully at my destination. 

So you only use about 40% of your battery’s capacity?  That’s only around 100-120 miles.  Sorry, but that sounds really inconvenient. 

[fuzzymoomoo]

13 minutes ago, CurtisH said:

So you only use about 40% of your battery’s capacity?  That’s only around 100-120 miles.  Sorry, but that sounds really inconvenient. 

Not really, it just requires paying more attention to what you’re doing and planning a little more carefully. 

[akirby]

2 hours ago, sullynd said:

Why?

 

I’ve never worried about fully charging my Mach-E while traveling - at least not while on the road - getting to “full” is just what we’re used to with ICE.  I can go from 40-80% range in about 20-25 minutes.  I’d rather stop for 10-15 minutes and get what that gives me, maybe twice, and then charge fully at my destination. 

Because I don’t want to stop for 25 minutes every 2 hours (longer if you have to wait for someone else) and I don’t want to have to plan my trip around charging stations.  The analogy would be driving with a 5 gallon gas tank.  Just not willing to do that given a choice.

[akirby]

51 minutes ago, fuzzymoomoo said:

Not really, it just requires paying more attention to what you’re doing and planning a little more carefully. 

Stopping to recharge for 25 minutes every 2 hours is damned inconvenient.

[mackinaw]

30 minutes ago, akirby said:

Stopping to recharge for 25 minutes every 2 hours is damned inconvenient.

 

Agreed.  And imagine how many more times you have to stop to recharge in the winter when it's 0 degrees outside.  

[tbone]

On 7/30/2021 at 9:33 AM, fordmantpw said:

Now, if only they could deliver it to my door so I could skip the dealer.

My long time sales guy does this for me now.  It’s very nice and convenient to take delivery in my driveway.