US Production

Bill Rinna, Director, Americas Vehicle Forecasts

28 February 2020

Light Vehicle plants

Walking the profitability tightrope

Ford will be keen to move on from 2019 and its muffed launch of the 2020 Ford Explorer at the Chicago assembly plant. When the full-year results were released, CEO Jim Hackett cited the issues with the launch as a critical factor behind the dramatic 99% drop in the company’s net income when compared to 2018, to just US$47 million. He claimed that better “operational execution” was the much-needed solution to the problems at Chicago in order to avoid such losses in the future.

For both 116-year-old companies like Ford or new startups like Rivian, Ford’s performance freefall highlights the delicate line that automakers must walk year after year to stay profitable. This challenge is exacerbated by seemingly endless headwinds looking to knock automakers off balance. In 2019, these North American production headwinds included declining global sales, tariff and trade uncertainties and a 40-day UAW strike on GM.

These gusts are not expected to subside in 2020, as global sales are expected to continue to decline. And while the phase-one trade agreement with China is a positive, trade and tariff clouds are not dissipating. In addition, round two of the GM, Ford and FCA union contract negotiations – this time with Canada’s Unifor – will add another layer of uncertainty for those automakers. And if you find yourself saying “been there done that”, the industry now also faces potential supply-chain disruptions from the COVID-19 outbreak, which halted production at supplier plants in China.

Against this backdrop, proper operational execution will take centre stage as the margin for error remains slim – a hard lesson learned by Ford in 2019. Add to that heightened competition (there are over 80 more sales models in the US market alone, compared to just five years ago) and it becomes clear that fresh product is more important than ever. The faster and more effectively a model can be launched, the better.

With seemingly little time to reflect on past errors with the Explorer startup, all eyes will be on Ford as it changes over to the redesigned 2021 Ford F-150, as well as the launch of the new Bronco, Bronco Sport and all-electric Mustang Mach-E. Ford is banking on these new and redesigned models to help ensure prosperity in the short term and beyond.

But Ford is not the only OEM planning high-profile vehicle launches this year. Possibly more important to its profitability than the Explorer is to Ford, GM’s stable of Fullsize SUVs at the Arlington plant will be redesigned from April 2020. Meanwhile, the much-anticipated launch of the new mid-engine Chevrolet Corvette began this month.

2020 also has the potential to be remembered as the year EV manufacturing began in earnest in the region, with numerous launches from both established and startup automakers. Joining Ford with new EV kick-offs are Tesla, Rivian and Lucid, to name but a few.

In total, we expect 37 launches of new and redesigned vehicles in 2020, up from 29 in 2019 and well above the annual average of 23 over the last five years. With all of this product activity and so much riding on the successful launch of these models, plenty of operational execution will be needed all around.