Ford held its annual shareholders meeting yesterday amid concerns over its recent announcement that it would refocus its business toward SUVs, crossovers and pickup trucks. As a result, Mexico’s position in the company’s manufacturing network is less than favorable. The country manufactures the Focus and Fiesta models, both of which will be cut from Ford’s lineup in favor of larger models.
“We are committed to taking the appropriate actions to drive profitable growth and maximize the returns of our business over the long term,” said Jim Hackett, President and CEO of Ford Motor Company in the corporation’s 1Q18 financial statement. “If appropriate returns are not on the horizon, we will shift that capital to where we can play and win.”
One of the measures implemented was an entire overhaul in Ford’s portfolio. Lagging sales of compact models moved the company to the decision of giving up on the compact segment. The final result was the elimination of all of the company’s sedan and hatchback models except for the Mustang and the upcoming Focus Active that the company will ship from China. This latter model was the one previously projected for the company’s new plant in San Luis Potosi until the project was cancelled.
Ford expects that by 2020, 90 percent of its sales in North America will be in the light truck segment. Since Mexico is solely focused on production of the very models that Ford decided to cut, the company must now communicate whether production will be refocused in its four plants in the country or if further divestment should be expected. Only the future for the production of the Lincoln MKZ remains unclear since the company made no comments regarding this brand. “We are going to be allocating even more capital to that (the light truck segment) to make it even larger and more positive for us and that will take capital away from those parts of the business that we think we do not have a path forward to appropriate returns,” said Bob Shank, CFO of Ford Motor Company in an interview with Bloomberg.
The company has consistently lost ground in the Mexican market against Japanese brands and the latest entrant Kia that has climbed the gradually climbed the ranks to occupy the fifth position in terms of sales in 1Q18. Meanwhile, Ford occupies now the eighth position in the sales ranking with a market share of 5.4 percent. In terms of production, Ford reported a decrease of 19.2 percent by the end of 2017 compared to 2016 and the expectation for the rest of the year is similarly negative after an accumulated plunge of 18.2 percent between January and April 2018 compared to the same period in 2017 and 31.3 percent in April 2018 alone compared to 2017.
Although there is a risk in making the decision to ditch compact models should gas prices increase or fuel-efficiency measures are reinstated after US President Donald Trump’s administration, most opinions favor Hackett’s decision to revamp Ford’s business. “The passenger car rationalization plan is just the sort of bold and decisive action we believe investors have been waiting for,” said Ryan Brinkman, auto analyst at JP Morgan Chase & Co.
The data used in this article was sourced from AMIA, Ford, Automotive News and Bloomberg.