At a moment when other automakers are talking about reducing production, Ford Motor Company (NYSE:F) said this week that it will increase production of two key SUV models because of strong demand.
A shortened summer vacation for 8 Ford factories
Ford said that its Louisville Assembly Plant will shut down for just one week this summer instead of the traditional two because of strong demand for its products: the Ford Escape and Lincoln MKC SUVs. Portions of seven Ford component factories that support the Kentucky factory will also have one-week shutdowns instead of the usual two.
Normally, Ford (like many other automakers) shuts down its factories for two weeks every summer to do maintenance and set up its tooling for the new model year. Eliminating one (or both) shutdown weeks is a low-cost way for Ford to boost supplies of hot models. At a plant like Louisville Assembly, which is already running nearly around the clock, it's a welcome opportunity.
Ford said that all of its other U.S. assembly plants will have the normal two-week shutdown.
Why Ford wants to build more Escapes right now
With the U.S. market likely past its cyclical peak, and other automakers like General Motors (NYSE:GM) making moves to reduce production as inventories swell, it's a bit of a surprise to see Ford moving to increase production. But the Escape, which was given an update for the 2017 model year, is a solid entry in one of the industry's hottest segments, and retail demand has been brisk.
That demand makes the production increase necessary, the company said. With the Escape consistently among Ford's stronger-selling models, the Louisville plant has been running close to its maximum capacity for a while. Ford said that cutting the traditional shutdown by a week will allow it to make more than 8,500 additional vehicles.
That will help boost dealers' inventories, which are thinner than Ford would like at the moment. As of June 1, Ford's dealers had just 54 days' worth of Escapes in inventory, or about 60,200 vehicles, according to data collected by Automotive News. Sixty days' worth is generally considered a comfortable minimum. With a fast-selling model like the Escape, Ford might prefer to have even more, like 65 to 70 days' worth, to ensure that customers have a good selection to choose from at most dealerships.
Ford isn't dumping all those Escapes on fleet customers, either. While Ford does sell some Escapes to its fleet customers, North America chief Raj Nair emphasized that strong retail demand is what's driving the decision to boost production:
The record sales for Ford Escape through May are being driven by strong demand from our retail customers. This is our strongest ever retail start for Escape, with retail sales up more than 6 percent versus this time last year.
Overall U.S. sales of the Escape (retail and fleet combined) are up 2.7% through May from the same period last year, to 129,805. U.S. sales of the Lincoln MKC, the Escape's upscale sibling, rose about 10% over the same period to 11,161. (The additional 7,536 MKCs sold in China this year through May were also made at the Lexington factory.)
What's next for Ford
Strong retail demand for the Escape bodes well for Ford's second-quarter profit margin in North America. Ford will report its second-quarter earnings on July 26.