Ford cuts Falcon and Territory production

Ford Australia has announced it will cut production of its Falcon sedan and ute and Territory SUV by as much as 20 per cent. The news came yesterday following an announcement to Ford staff and continued lacklustre sales in the large car and medium SUV markets -- the local manufacturer’s bread and butter segments.

Ford Australia boss, Tom Gorman, told CarPoint that the company would trim production at its Broadmeadows (Vic) plant from a line rate of 65 vehicles per hour to around 52. This equates to around 360 vehicles per day -- down from 450. The reduction will take effect from the third week of November he said. According to Mr Gorman, the company will also extend its now-traditional Christmas shutdown "by a couple of days".

Mr Gorman said the company was taking a "responsible action in the face of very powerful near-term challenges, specifically the continued shrinkage of the large car segment as well as [the] recent shrinkage of the medium SUV market."

At this stage no decision regarding redundancies has been reached. According to Mr Gorman the process would take two to three weeks. He also stated the company was reviewing its operations overall before finalising plans.

"As you can imagine this is an involved process," he said. "We're not at all taking a slash and burn mentality here. What we're really trying to find out is how we adjust to some near-term changes in the marketplace but still hold out for what we think is a bright future."

The decision to cut production levels comes after what Mr Gorman described as "a very challenging" September. He said the "lack of bounce" in the large car market following the arrival of the VE Commodore had surprised the company's forecasters.

“You have to cut the cloth to fit the suit,” he said. “Producing cars at the line rate we have today and not selling them leaves you with a couple of choices. You can put them against the fence which we don’t want to do because it’s not good for quality, it’s not good for our total cost base -- it’s not good for anything in the long run… Or you can step up to it and say: I’m going to produce what the market is looking for in the near term and I’m going to be as efficient as I can be at that level of production.”

The Australian large car market did grow marginally in September but, according to Ford’s own figures, at 13.4 per cent is 3.1 percentage points down year-to-date and a far cry from the 22-plus per cent share of just three years ago.

Though the local large car market share withdrew at less than 1 per cent of the total per year between 1997 and 2003, it has dropped precipitously since -- down 2.8 per cent in 2004, 3.5 in 2005 and a forecast 2.8 per cent down this year. Note that these are share reductions -- in relative terms YOY the large car market has dropped 12.4, 17.7 and 17.2 per cent across the same period.

According to Gorman, the combination of more choice (via new brands, segments and models) and cheaper imports courtesy of a strong Australian dollar plus sharp increase in fuel prices had conspired to create “the perfect storm” against large family sedans cars in Australia.

He said he believed that local large car production had long term viability but only if the market steadied at the current level. He also stated that exports were crucial for the success of the next generation Falcon due in 2008.

“I’ve said before [the large car market] it’s never going to be a 20 [per cent] share segment again. But if it’s in the neighbourhood of 13.5-15.5 [per cent] you have a marketplace you can make something of… Then you add on top of that exports and you have yourself a business.”

Mr Gorman dismissed suggestions that if current trend continued that the Australian large car market could account for a single figure share within two years.

“There’s no way I’d postulate it’s going to be at eight per cent,” Mr Gorman said.

“Over the last couple of months it has most definitely stabilised and flattened. The VE is only in its launch phase -- only in its second/third month of launch; Aurion is just around the corner; and we’ve just announced very aggressive action with BF MkII. So you’re going to see more people fighting for that segment which will drive more people [buyers] in.”

He stated that Ford had made key decisions and changes to the next generation Falcon based on the movements in the segment sincle late 2005 but said that the current situation would not impact on the investment towards it and other new products.