Though "volatility is the new norm," Ford President Mark Fields sees some solid signs for the car market, driven in part by the Cash for Clunkers program.
“Volatility,” says Mark Fields, is the new norm. And that is making it downright difficult to predict where the U.S. auto market is going, despite the sudden upturn in demand triggered by the federal Cash for Clunkers program. Nonetheless, Ford believes things are moving in the right direction and will continue to improve once the federal cash incentives run out in the next month or so.
Fields is in Pebble Beach, this weekend, for the annual Concours d’Elegance, one of the world’s most lavish classic car shows in the world. He set aside a little time to meet with TheDetroitBureau.com’s Paul A. Eisenstein.
TDB: The Cash-for-Clunkers program seems to be working, though to the large degree, aren’t the Japanese gaining more sales than Detroit?
FIELDS: Well, from our standpoint, it’s doing well for Ford. We’re getting 16% of the people coming in for those deals and we have two vehicles in the Top 10, with Focus going back and forth with the (Toyota) Corolla for the number one purchase. Our year-to-date market share is about 13%, so this bodes well for customer recognizing our products.
TDB: Nobody seems to know what happens when the Clunkers program ends.
FIELDS: It’s a bit like snowflakes. Everyone’s opinion is different and I don’t think anyone has the right answer. But when you look at the type of customer coming in, I think a lot of these people would have been content to keep their cars until they ran into the ground. A large percentage would have been used car customers. So, there’s been some incremental business and some has been pull-ahead, so there’ll be payback in the next month or two after it ends. But I think we’ll continue to see a general improvement in the general auto market, an improvement quarter by quarter. It won’t be huge, but the metrics we watch are trending in the right direction.
TDB: So, this is motivating even those buyers who don’t have clunkers to trade in?
FIELDS: The industry has run for a long time below the scrappage rate, so there’s pent-up demand out there. (But) for so long, the only news out there was telling consumers it wasn’t the right time to buy anything, let alone cars. But this has made it socially acceptable to go out and buy a car.
TDB: So, are you revising your sales forecast?
FIELDS: For the second half of the year, we’ve called the industry at 10.5 to 11 million year, and Clunkers will help. Next year, we’re calling in the range of around 12.5 million units. The majority of the (federal stimulus plan to be in the market until the end of the year, so that will help.
TDB: At a recent industry conference, several senior Wall Street analysts predicted Ford could be profitable by year’s end. Your own prediction?
FIELDS: Well, we don’t want to violate SEC guidelines (regarding financial data), but we have set out there that we hope to be cash-flow positive by 2011. But we aren’t going beyond that because volatility is the new norm now.
TDB: Has Clunkers convinced Ford to increase production?
FIELDS: We’re increasing our fourth quarter production versus last year by about a third, and it’s across the board. We already had planned to increase third-quarter production by 16%, and now that’s going to 18%, with a focus on Focus, no pun intended, because of the Clunker program’s emphasis on small cars. As inventories go down, production will go up.
TDB: Curiously, if you set aside the boom in small car sales under the Clunker program, there’s been almost no real shift in what American motorists are buying, no real shift to smaller vehicles, despite $4 a gallon gas. Your thoughts?
Fields: For the most part, the industry has stayed static, though crossovers have gained za few points, while traditional SUVs have lost a few. Customers are still focused on fuel economy, but they’re telling us they want the functionality of their vehicles, but with better fuel economy. We have said that going forward, we’re going to be the best, or among the best, in every segment we compete in.
TDB: We’re seeing the industry come on very quickly with electric and hybrid vehicles. Let’s talk about your plans.
Fields: We said, from an electrification strategy, we’re going to be very aggressive. We have an electric vehicle coming out next year, our Transit Connect, a (battery) Focus the next year and two more in 2012.
TDB: So, how do you feel about the proposed new EPA mileage standard for electric vehicles, which yielded as 230 mpg number for the Chevrolet Volt?
Fields: I think it can be really confusing for customers. We want to wait for more guidance from the EPA on their metrics for calculating mileage on electric vehicles.
TDB: Changing topics, Ford was getting ready to return to the bargaining table with the UAW to ask for additional concessions to make it more competitive. Where do things stand?
Fields: The UAW has been very cooperative about keeping Ford competitive because they have the same stakes we do. We will continue sitting down with them, but the discussions are private.
TDB: Do you need further concessions?
Fields; In the very short-term, we’re very competitive. Medium and long-term, there are areas we can improve, but those discussions are private.
TDB: Some senior GM insiders have suggested the concessions they have been granted by the union, and other moves made under bankruptcy, have shaved as much as $5000 or more off the cost of building the typical car. Is that in the range for Ford?
Fields: At the end of the day we feel we’re competitive. But, at the end of the day, the real question is whether people want our product. You can be really cost competitive but if you aren’t out there with products people really want and value, it’s a false victory. So, that’s why we’re focusing on keeping our product pipeline filled with vehicles that have best-in-class cost, safety, quality, fuel economy and technology.