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Ford CEO Jim Farley Says Build To Order Paradigm Is Company’s Future

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For many years now, most automakers have built a host of vehicles, shipped them to dealers, and sold them in that manner, though some buyers choose to go through the process of ordering a vehicle to their own specification. However, the semiconductor chip shortage has shaken up that old business model, to the point that Ford CEO Jim Farley now says that the automaker will shift to more of a build to order approach.

“We are really committed to going to an order-based system and keeping inventories at 50 to 60 days’ supply,” Farley said during Ford’s Q2 2021 earnings call with investors. “I know we are wasting money on incentives.”

Historically, vehicles that wind up languishing on dealer lots often require heavy incentives to sell, particularly near the end of a model year. The chip shortage, however, has forced automakers including Ford to slash production, leading to record-low inventory on dealer lots.

2021 Lincoln Nautilus

But this crisis has also forced Ford to focus on producing its higher-margin products, which boosted revenue by nearly $5,000 per vehicle in Q2 and added $1.5 billion to the automaker’s operating profit. Additionally, average transaction prices increased by approximately $6,400 in June, year-over-year, at $47,800 per vehicle.

Ford recently admitted that its inventory will never return to its pre-COVID-19 highs and that the pandemic had taught it how to turn inventory faster. Shifting to a build to order approach while also increasing inventory turns will undoubtedly continue to have a positive impact on the automaker’s profit, particularly when the chip shortage is over.

Farley recently stated that the chip supply was beginning to improve, and reiterated that on Ford’s earnings call as well, saying that he’s “seeing signs of improvement in the flow of chips now in the third quarter, but the situation remains fluid.”

We’ll have more on Ford’s build to order strategy soon, so be sure and subscribe to Ford Authority for 24/7 Ford news coverage.

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Brett's lost track of all the Fords he's owned over the years and how much he's spent modifying them, but his current money pits include an S550 Mustang and 13th gen F-150.

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Comments

  1. Greggt

    If Ford actually follows through with this plan, they will need to 100% replace their Planning and Purchasing Department, no way could they handle this task!
    I don’t think I have ever seen a CEO with such a big disconnect on what is going on with their company.

    Reply
    1. Ryan

      That’s very standard when you start leaning out a company. As you start to reduce inventory you find weak points in the company that have always functioned poorly but the problems have been covered up by a pile of inventory. It’s all part of the process

      Reply
    2. NCEcoBoost

      I agree. If this comes to pass, it’s bye-bye Ford. Ridiculous. Farley’s head should roll over this one.

      Reply
  2. Stephen Ketterer

    [Read: most regular folks won’t be able to afford transportation, so product fulfillment with be strategized for the rich.]

    Reply
  3. Roy Chiles

    I don’t know how he got to be CEO but I do know he don’t know how to run a Automotive Company and seriously needs to be removed

    Reply
  4. Rinzler

    Ford is on the path to reinvent itself under Farley. Under the last two CEOs, Ford’s credit rating was literally rated “Junk” by Motley Fool and they have been making hand-over-fist profits ever since he arrived.
    Just because you don’t like the direction of the market, doesn’t mean he doesn’t know what he’s doing. Take a look at the numbers, they just posted higher than expected earnings for Q2 and is up 4.5% today in the Dow. I actually own stock in Ford and have been happy with where the company is headed and the products it’s been bringing to market.

    Reply
    1. Explorer ST

      Couldn’t agree more, as I am also a big investor in Ford. Love what Farley has done since he was named CEO. Recent and upcoming products have been stellar!

      Reply
    2. NCEcoBoost

      Ford’s stock has been doing well, as have all other auto manufacturers for one reason. This conspiracy called the chip shortage. It’s lowered supply, raised demand and caused profits to go through the roof. Won’t last and the upshot of it being discovered will TRASH all auto stocks. Enjoy it while it lasts.

      Reply
  5. Ryan

    Most large manufacturing companies employ Lean to be more efficient. One piece of Lean is keeping inventory low, which everyone has done with the parts inventory for a long time using just in time delivery. And now everyone has finally realized they can do it on the back end as well. Reduces money tied up in sitting inventory, reduces incentive cost, reduces lead time on orders, reduces risk of damage while vehicles sit, reduces rework if there’s a stop-sale situation, reduces time to launch a new model, the list goes on an on. Reducing inventory is a huge win for any company

    Reply
  6. Outlook214

    I think this only works if others follow. Lucky for Farley, GM, for sure, and maybe Stellantis will follow suit. There’s no way Ford sells F-150’s at $55k MSRP while Silverados and Ram 1500’s sell for $45k with incentives. I agree to some extent that it doesn’t make sense to have 100 F-150’s on a dealer lot, only for the dealer to have sell at invoice minus rebates. The whole #1 selling truck for 45 years running or whatever will become a distant memory. I’m not saying it won’t work, it might turn Ford into a much more profitable, higher quality company, like say Toyota.

    Reply
    1. Tigger

      Translation: Dear Customer expect to pay even more for a new vehicle when you buy from us. Customers have become addicted to- and expect- some form of incentive. Even if it means charging an artificially high price for the vehicle and adding incentives later on. Customers want to feel they got a good deal. What Farley is basically stating to the customer is that you are going to pay more for our product. It looks good to bean counters, but customers will simply go elsewhere if they can get a better deal.

      Reply
  7. JOHN MAJDALANI

    Does this poorly managed company expect customers to pay sticker price for their often recalled products?

    Reply
    1. Bill Stuart

      Stock price tends to disagree with your assumptions.

      Reply
      1. JohnnyBronco

        Then why is Ford stock half of what it was 20 years ago? Yes it is approaching 10 times its this century low of less than $2 back in 2008 and is up 100% over 1 year ago. But from Oct 1, 2020 (Jim Farley’s first day at the top) to today , the nearly steady rise in stock compared to Jim’s only ability to add more color options on existing vehicles (almost every other day this site reports a new color option on something) is purely happenstance

        Reply
    2. Matty Ice

      If you want to buy the all new super duty, bronco, raptor, lightning, maverick and so on.. absolutely you will pay msrp and enjoy it. Hundreds of thousands of happy customers are doing so, look at Fords order bank numbers, they are ridiculous right now! They have an outstanding product lineup blowing competition out of the water.

      Reply
  8. JohnnyBronco

    Hey, Jim

    I placed a reservation for a built to order vehicle back on July 14, 2021 Where is my Bronco??????

    Meanwhile this proposed emphasis on build to order is nothing new. Ford first thought this up back in the 80s or 90s with the idea of each dealer only carrying a single display vehicle of each model and customers using a self-operated computer terminal, or portal like McDonald’s or Panera, and customers would, with sales personnel assistance, place their own order for a vehicle that would show up, as unit, in as little as 10 days. So don’t go lauding Jim Farley for this breakthrough concept. All Hadid Wasco through the Lutz-Iacocca archives, lol

    Reply
  9. Bbot

    I would prefer to purchase a well equipped truck and only return for routine maintenance than buy a truck rushed out to fill the lot. My only caviot to this is I also would prefer a minimum of 70% of parts made in USA branded trucks !
    Built Ford Tough should also be Built in the USA.

    Reply
    1. Matty Ice

      Fseries are still built in Dearborn and Kansas City, super duty in Louisville.

      Reply
  10. Tina Walling

    I’m tired of waiting on my Bronco Sport. I ordered 3/13 and the dealer said I would get it by May then I got an email it was in production 6/17 and eta is 7/12 so I sold my Subaru. After I sold my car I see the new eta changed to 10/31 and then changed to 11/3. I am seriously thinking about buying another car but I really don’t want to.

    Reply
  11. Dave Mathers

    39 years ago, 1982, the interest rates hit 26%. We made the decision to stock only one of each product while the rest of the 17 Metro Toronto Ford dealers still had hundreds on the ground and brutal floor plan expenses. We could order a vehicle exactly the way the customer wanted it and get it in two weeks. The joke was ‘the factory’s tool boxes are open and they are ready to build’. We made more money that year than all the other 16 dealers combined. Good times!

    Reply
  12. Arnold Wilson

    I purchased a 2003 mustang Mach paid it off it has 25000 original miles on it some way Ford drop the ball and I can’t get the title to the car. This has been 17 years ago and this company don’t know how to do away with the lien release paper to the DMV I can’t even sell the car back to Ford something is really wrong with this again I say send me my title for my car that was paid off in 2007

    Reply
    1. Vash

      This comment is amusing cause it doesn’t even involve this articles topic. Plus your math is wrong 2007 when you paid off your vehicle is only 14 years. If your story is true there are legal procedures To handle such situations. At this point your more at fault than they are for incompetence.

      Reply
  13. Vash

    Even before the chip shortage several people preferred the build to order. I have 2 friends that have done the build to order cause it’s very hard to find the exact model in the exact color with all the extra you want. Sure it no fun to wait so there will always be people that just want what is on the lot so they can drive it home that day. But if I am spending 20k+ I want what I want. If it’s on the lot cool if not probably build to order. Speaking of what I want the next year maverick better offer manual as an option.

    Reply

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