Small Car Demand Outstrips Supply

Looking at the sales figures, small cars are king. Ford offers the Focus, Fusion, Escape and Ranger as well as Mercury versions with a four-cylinder engine. They can’t build enough of them to sell. Dealers around the country have a historically low supply of these vehicles, so while people want them Ford is still losing sales because dealers can’t get enough.

"The car performance was led by the Focus, where first half of retail sales were up 53 percent, strong performances higher retail sales for our midsize sedans the Fusion, the Milan and the MKZ and our crossovers also out performed the industry in the first half and Edge was the major contributor to that." Said George Pipas, Ford Sales Analyst.

Cars like the Fusion and Milan which are also available with a V6 are seeing major increases in percentage of sales for the four cylinder models. An astounding 70% of the mid-size cars are being sold with the smaller engines, a 13% increase over last year. The same increases are found for the Escape and Mariner compact SUVs as well as Ranger.

This provides a production challenge for Ford which has to find a way to build more four-cylinder engines. Since most of the cars use the same or similar engines, getting enough of them to all the different factories is the bottle-neck.

More Efficient Products On the Way

A refreshed Fusion and Milan are coming late this year that will offer a highly sought after hybrid option. In addition, the standard engines will have efficiency gains too. The face lifted mid-size sedans will be a good shot in the arm where Ford needs it the most.

"Ford is adjusting quickly to this reality, I think we're going to have a lot of good news on fuel economy in conjuction with the new Fusion, Milan and MKZ that we start building later this year, and there is more good news to come in the fuel economy. So Ford is adjusting not only its production quickly, but also in the next several months, including the introductions that we have today, several products will boast class leading fuel economy readings, “ Pipas said.

But it is still not enough. Ford is in the middle of a crash course to bring additional models from their collection of European models here to the States. While Ford Vice President of Marketing and Communications, Jim Farley would not specify what models they are considering he shared that, “We are redoubling our efforts to bring more of our European product here. We are excited about the acceptance of these products here”.

The European Ford Fiesta and Transit Connect are already on the way within the next year. But other products that could make the cut include the new Ford Kuga, a small car based SUV that would come in just smaller than the Ford Edge. Ford also builds a car based mini-van similar to the Mazda 5 that offers people moving capacity with an efficient four-cylinder engine.

Trucks and SUV’s Old News

With gas prices in the $4.00+ range and believed to stay there, trucks and SUV’s are not selling at all. The Expedition posted a 59% sales decrease, while the Explorer fell 52%. F-Series trucks are off 40%. The major shift is caused by a number of issues. First, people who don’t need trucks are shopping for other things. The only people that are continuing to buy trucks are people who need them like construction, contractors, and other businesses who use them in trade. The problem there is that many of these trades are also in an economic slump and aren’t buying new trucks very much.

Ford believes that even if gas prices were to come back down in the short term, that the shift of consumer purchases in the large trucks and SUV's is a permanent one. They said that it would take several years of sustained low gas prices before car buyers would feel confident buying full sized trucks in large numbers again.

As a result, Ford has cut back production at truck and SUV factories dramatically in the short term to allow dealers to sell off high inventories. In some cases workers have been given the summer off. By year's end, some factories are likely to close for good and/or be converted to small car production.

Credit Crunch Eliminating Qualified Buyers

When you add the fact that a higher percentage of consumers have seen their credit ratings lowered in the past year due to foreclosures, late payments, and defaults - many new car and truck buyers cant get loans to buy them. With fewer people able to get car loans, or attractive interest rates, sales suffer.

There is the old saying that a higher tide raises all boats. The notion says that when things are good for the many, it benefits everyone in the orbit. Unfortunately we are seeing the same is true when the tide lowers, the other boats come down as well.

Ford has its own in-house lending arm, Ford Credit. It is little help because with the current state of the economy, even they are not able to lower lending standards and increase the risk to move the metal. Other banks are not jumping in to help either. This is a storm that will hang low and slow for time to come.

Where Is The Bottom?

Nobody has the answer. The forecast for the auto industry as a whole remains tentative. While improvements were beginning to take hold earlier this year, accelerated high gas prices have shattered any gained ground in an instant. “There is nothing in the leading economic indicators to suggest that we've reached the low point. That may still yet be in front of us," Pipas said today.

Ford can only react as they are doing by making some tough and drastic decisions to cut the cord on some slow selling products, speed up the process of getting new ones to market, and further shrinking their operational staff and facilities. It is a historic and unprecedented time for the American auto industry, and we will keep our eyes on it.

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