The Motley Fool Previous Page

Ford Adds Much-Needed Production Capacity

Adam Levine-Weinberg
August 5, 2013

On Thursday, Ford Motor (NYSE: F) reported strong sales for the month of July. Retail sales were up 19%, making it the best July for retail sales since 2005. The results were driven by big sales gains for small cars and full-size trucks. That said, F-Series truck sales were down more than 10% from the strong pace set in May and June. The sequential decline can be explained largely by tighter inventories driven by the high sales rate this spring.

Moreover, the extremely popular Ford Fusion finally hit a wall in terms of capacity constraints, as expected. In some markets, Fusions are sitting on dealer lots for just 10 days, on average! (Cars tend to spend 50-60 days on dealer lots in a normal selling environment.) According to Ford executives, Fusion continued to post strong sales gains in coastal markets, despite very low inventory.

The 2013 Ford Fusion (courtesy of Ford)

However, on a nationwide basis, Fusion sales dropped 12% year over year in July to 20,522. By contrast, Fusion sales eclipsed the 30,000 mark in March and came in just shy of that level in May. Ford is now in the process of adding additional production capacity for the Fusion sedan and F-Series trucks. As supply improves this fall, sales should rebound to the strong pace seen earlier this year, and could potentially move even higher.

Strong demand
Earlier this year, Ford was starting to challenge midsize car segment leaders Toyota (NYSE: TM), Nissan, and Honda (NYSE: HMC) with strong Fusion sales, particularly due to share gains in California and Florida. However, low inventories of the Fusion -- along with a somewhat more competitive pricing environment -- have helped the Japanese automakers to regain some market share this summer.

The situation in the full-size truck segment is similar. This spring, Ford was beginning to pull away from General Motors (NYSE: GM) for the full-size truck sales lead. The recent introduction of GM's new full-size truck architecture had no noticeable effect on Ford's momentum. However, Ford has not been producing enough F-Series trucks to sustain the 70,000 units per month sales pace set in May.

Given the strong customer acceptance of the Fusion and the F-150, Ford has the opportunity to gain share in these two high-volume market segments at the expense of competitors like GM and Toyota. Fortunately for Ford shareholders, the company is planning to do just that by increasing production of these popular vehicles.

Capacity ramping up
For more than a year, Ford has been planning to expand Fusion production capacity this summer by adding a second manufacturing plant (the Flat Rock Assembly Plant). Late last month, Ford introduced a "simulated factory" at Flat Rock where it is training new hires before putting them on the Fusion assembly line next month.

The Flat Rock plant will continue to produce the Musta