Posted on: Thursday, September 2, 2004
GM, Ford slowing production
By Jeffrey McCracken
Detroit Free Press
DETROIT — In another sign of a sluggish U.S. economy and slumping auto sales at General Motors Corp. and Ford Motor Co., the automakers said yesterday they plan to slow down their plants the last three months of 2004 and make about 165,000 fewer cars and trucks than they did a year ago.
Ford will build fewer vehicles in this fourth quarter than it has in any year since the recession year of 1991, auto analysts estimate. For GM it will be the fewest vehicles built in a fourth quarter since 2001, the quarter after Sept. 11.
The production cuts, a surprise for Ford but less so with GM, will chop into plant-floor workers' hours and pay while also likely hurting fourth-quarter earnings for the two automakers.
Ford said it doesn't know if it will end up idling plants for a few weeks to trim production, but that it will definitely avoid running truck and SUV plants on overtime as it did last year.
"I don't think production cuts are ever good news for automakers or suppliers," said Catherine Madden, auto-production analyst at Global Insight, an economic-research firm. "No supplier I've talked to was prepared for how much Ford would cut for the rest of the year. They were prepared for GM to cut some, but even they cut a little more than expected."
A squeeze between slower-than-expected sales and a glut of unsold cars and trucks is prompting the production cuts at GM and Ford. The Chrysler Group does not disclose its production plans.
GM sales were down 14.1 percent for August, and Ford sales were down 12.9 percent. DaimlerChrysler sales fell 5.7 percent, among the best performances in an overall down month. This was the fourth straight month Ford reported lower auto sales while GM sales have been down or flat the last three months.
"We are doing this to production just to be cautious. The economy is definitely in a soft patch and clearly it's fallen off the growth pace of last year or even early this year," said George Pipas, Ford sales analysis manager. "We are certainly more cautious about the economy than we were three months ago. What we need to see is a resumption of job growth."
Ford is cutting production by nearly 8 percent, or about 70,000 vehicles. It expects to build 60,000 fewer trucks and 10,000 fewer cars in the fourth quarter, for a total build of 830,000 vehicles.
Ford is already on pace to build fewer vehicles in the current quarter than it ever has for a July-through-September period.
"No matter how Ford spins it, this is not good news. The entire industry was surprised by it," said Madden.
GM is cutting its fourth-quarter production by about 7 percent, or about 95,000 vehicles. Unlike Ford, which is mostly cutting trucks, GM is heavily trimming car production. It expects to build 66,000 fewer cars and 29,000 fewer trucks than it did a year ago.
Many Wall Street analysts had expected GM to cut its production even more, given that the automaker is sitting on 1.15 million unsold cars and trucks, an unusually high number for this time of the year.
GM insists it will get its inventory of unsold vehicles under control.
Economists at Ford, GM and elsewhere had generally expected stronger job growth and better economic growth than the spotty record so far this year.
After a robust first quarter, the economy slowed dramatically in the second quarter. Meanwhile, the government jobs report has produced disappointing readings in June and July.
"The automakers were saying at the beginning of the year and even later that the economy was going to be robust to pull them along, but it hasn't happened," said Mike Wall, an analyst at auto-forecasting firm CSM Worldwide.
