In 2021, Ford is projected to lose around 700,000 units of production as a direct result of the ongoing semiconductor chip shortage, which will cost the global automotive industry hundreds of billions of dollars. This crisis has also forced Ford to change the way it does business, prioritizing high-margin and strategically important vehicles over others, deleting features where possible, and shifting toward more of a build-to-order model rather than filling dealer lots with inventory. And while the chip shortage won’t last forever, CNBC speculates that the way Ford conducts business very well could.
“This is a better way to run our business,” Ford CEO Farley told investors earlier this year. “We have the most complicated go-to-market system I think on planet Earth. We could simplify all of that with tighter inventories.” Ford is currently targeting a 50-day supply, which is considerably less than the 75 days supply that the automaker has historically maintained, a move that it intends to make as it shifts toward a more profitable order-based system.
The longer inventory levels remains low, “the more likely it is that these changes can be made permanent,” said Tyson Jominy, vice president of data and analytics at J.D. Power. “The challenge is it’s a fixed asset industry and we have a core history of backsliding and producing more because the temptation is always there to cheat, produce one more unit because of the cost efficiencies.” There are around one million new vehicles current on dealer lots, a massive 1.8 million less than 2020, and 2.5 million fewer than 2019. This has, in turn, led to record high new vehicle prices and record low incentives.
“Everybody’s going to make a lot more money because of it from here on out,” said Sonic Automotive President Jeff Dyke. “I just don’t see it going back to pre-Covid levels.” A full 89 percent of new vehicles purchased this year have sold for near or above MSRP, compared to just 12 percent in 2019, and that doesn’t seem likely to change. “I would probably argue that some of that could be permanent,” said Jeff Schuster, LMC’s president of the Americas. “I don’t think pricing is going to come back down to pre-shortage levels or incentives are going to increase.”
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The thing of it is, the rest of the industry will have to change to make their idea to work. If one is looking for a Pick Up, go to the Ford dealer and their inventory is almost non-existent but the Ram dealer has plenty to chose from, instead of waiting 2 plus months for a F150, it will be a Ram that goes home with the customer.
Everyone not a customer will see this is the future. All
Manufacturers have realized a race to the bottom isn’t profitable.
Making less vehicles and paying the auto workers a little more to work a little less will ensure profitability.
Right now, manufacturers are overly incentivizing with 0% and huge rebates.
Fact is the consumer has been taught how to work for a mooch deal for decades.
Folks now are paying thousands over MSRP and are being taught this is the way you buy vehicles.
Not unlike groceries or furniture or housing which has way higher % of margins.
Fact, car companies will soon find themselves in bankruptcy again.
I doubt it there’s plenty of people paying over MSRP putting themselves in even more debt. And the dealerships know this and the gouging will continue from them .
Anyone who pays over MSRP is a fool.
Agree 100%. I want to see the car/truck in person, touch, look at the color, look over the vehicle, sit in it, test drive it to make sure it’s for me. If I am going to invest $50k to $90k I am going to be happy. So I will not shop on the internet for my vehicle.
Invest? Since when is buying a car an investment? Using the word “spend” $50k to $90k seems more appropriate.
“the rest of the industry will have to change to make their idea to work” Yep, and one has to wonder if the auto industry is colluding against the consumer. It wouldn’t be the first time. Sounds like the DOJ needs to investigate as soon as we get an honest DOJ back.
Indeed, don’t be fussy over builder loyalty. Above all why not just produce those chips here instead of depending on imports. But I guess that makes way too much sense.
Fabs are already in the US with more being built and planned.
I don’t mind ordering. Ordered a 2022 Maverick, which came in and a 2022 Mustang Mach E. There is less chance on having scratches and dings on them compared to in stock units that sit on dealers lot. In the winter they are cleaned with snow rakes, moved all around so the lot can me plowed, customers in and out of them for demos.
In six articles I’ve written on the financial blog Seeking Alpha, I could only find a fire and earthquake at Renesas impacting microcontroller chips, and with hoarding as the problem. Elon Musk agrees with me on the microcontrollers, and the CEO of TSMC agrees with me on the hoarding. Conversely, NO auto company has come out and said what chips are shorted. China gets chips from manufacturers around the world and makes them into modules that are placed in cars primarily in Asia and the US. Ford engineers don’t walk around the plant with a soldering iron and a basket of chips. These modules, like navigation, radio, lights, come assembled.
As a result, semis are building more fabs to make more chips and buying more equipment. A $3 microcontroller chip used in nearly all electronic gadgets, is selling for $93 because of shortages and hoarding.
The US embargo to China means China is building more fabs and hoarding chip equipment before more sanctions kick in. I also are seeing hoarding as the Chinese, sticking their middle finger at the US, are prioritizing chip shipments to Chinese auto companies. At the same time, global auto companies outside China, which are predominantly ICE makers and a ~10% business in EVs, are prioritizing orders of components first to EVs, then to ICE.
Finally, because of all this mess and worries about supply chains, many countries, lead by the U.S., are giving free money to chip companies to build plants in their own country.
Automobile chips are typically old 20 year tech.
The chip makers have pivoted during Covid to more profitable new generation 4 and 5 nm chips.
The fabs simply don’t want to waste silicone on unprofitable chip production.
Auto manufacturers need to in house develop chips that are high tech.
We lost our dominance years ago when chip makers went away and now rely on Taiwan and China for the bulk of production
Add in onerous tariffs and we wonder why China doesn’t participate with our needs.
So in your mind, we just need to give up and roll over to China?
Everything should be supplied inside America. Although this wouldn’t help the one world order to turn every country into a communist third world.
Great article if your brainwashed. Fact. Planned shortage along with the plandemic to appoint a terrorist regime in the white house for one world government and getting rid of the whats left of the middle glass.
Definitely opinion, not fact (reference to new regime, as opposed to the moran there previous)
Ford is already bleeding business because of unprecedented dealer markups. There are so many sites setup taking aim at their distribution model as current it creates the opportunity for dealers to abuse customers. Manufacturers are going to be forced to change because new car companies coming online that have the product and can deliver the value without added dealer greed. Ford best watch closely because 20 years from now it may no longer exist.
Ford is loosing sales because they can’t make enough vehicles. The dealers can get away with the $5-$10k marks up because there are enough buyers at that price to sell the vehicles they can get.
But yeah Ford is missing out currently since if they can’t just up the MSRP and get that extra $8K for themselves like Tesla has done on the Model 3 (21% increase in a year).
Sure am glad I live in small town America. I went to my small Ford Dealership, took a test drive, and left a couple if hours later with my new Mustang Mach-E. I paid $100 UNDER sticker. Not much of a discount to be sure but a hell of a lot better than $5,000 additional dealer markup.
I’ve had a build date for my new grand tourneo active connect put back several times since odering in March 21, now I’ve been told that it has once again been put back until February 22 yet I see plenty of top range fords with a 21plate on the road! I feel like I’ve been chosen to sit on the back burner while other vehicles get the chips, I have been told by my dealer that they have no control over whats happening and I just have to wait!! I’m a disabled customer and this is the last time I will ever have a ford!
I’m beginning to feel the same. I’ve had a ’22 F250 on order. Kinda feel like they’re trying to get their existing inventory out more than fill standing orders.
They said “everyone is goin to make allot of money” but this business model hurts the consumer they are the ones paying the rediculouse high prices that’s just straight mark up. They wanto keep it that way to get rich. But I’d rather have full lots and more competitive market. U can still place orders if u want but fuller lots keeps prices lower.
Te manufacturer makes more money if they sell 85% of their typical output. Less incentives and low financing.
Customers clearly have understood the market will conform to the new normal.
Folks don’t stop buying houses or high ticket items because they’re more expensive.
Rolex watches or gas – groceries ammo, houses. Folks aren’t going to just stop buying consumables.
Everything is more expensive.
Vehicles are reflecting the same ideals as jewelry and furniture.
Reasonable profit margins now compared to what obscene markups in other markets.
You don’t negotiate your dinner bill or groceries. They ring you up. You’re gonna pay the ticket and they’ll grift you for 15% gratuity on your meal.
Groceries pass on higher transportation costs and cost of doing business on your food
This isn’t a foreign concept.
It’s literally free market economy – supply and demand.
Only idiots are content to over producing and having to incentivize the sale of said product. It’s unAmerica.
Buy American and make American. Its gonna be expensive.
Of course people stop buying, or at least delay it. Instead of buying a new car at three years they wait five for instance. Very few people actually need a new car, they WANT a new car.
It’s not American if the chip production is outsourced to China. The TCM chips are still indefinitely backordered with no fulfillment date in sight. Dealerships have 30 +cars on their lots waiting on this repair which is souring consumer brand confidence. 6+ months so far and no vehicle repair solution for a known problem. Ford is just pushing the blame off instead of solving the problem. Smh
It probably doesn’t matter,but I will never ever pay MSRP for a new vehicle.
You may have bought the last new vehicle of your life.
I doubt it. If one is not lazy and shops around- even it if is a dealer 200 miles away- there are deals to be had. A dealer will stop gouging customers when the customer gets off their butt and not accept the first offer they are given.
I don’t agree with Gregg about buying a Dodge ram I’m a loyal Ford guy I would never buy anything but a Ford so I don’t care how long it takes its well worth it Ford is the best auto Maker always will
By a Ford and walk .FIX OR REPAIR DAILY.
At Ford, they circled the problem (think the Ford logo). I’ve had several and they were all crap.
It’s an oval, not a circle, you tried.
Technically, Ford’s logo is an ellipse, not an oval. But “Blue Oval” sounds better than “Blue Ellipse.”
First Of Run Down
I have bought 6 fords in my lifetime. Kept them all long enough to know that FORD transmissions all fail. I have an explorer and a ranger sitting in my driveway right now that need transmission repairs. So I like FORD but Found On Road Dead does apply.
This will impact all those mega dealers, who have over a hundred cars/trucks on their lots at any given day. No longer can a dealer claim “The biggest” in the area/state. Also, no more dealing on price. IF that’s going to be the case, fewer people over time will stop buying new.
2 points: 1) This mess is a direct result of fed money-printing and central bank/ fractional reserve fiat system. 2) This makes my 2020 F150 pretty darn attractive vs moving into a new F350. The current truck is running great, no interest on note, real happy with it. Thinking i will just keep it for a long time.
My 2018 F150 Lariat is worth more now than when I bought it. Of course it was a one-year-old used truck when I bought it. Somebody else took the big depreciation.
Automobile dealers back in the 50’s very seldom sold a car from their inventory. As a young kid, I can remember going in to look at the latest models. The “showroom” was larger in volume than the area used to park “inventory”. Usually vehicles in inventory were ordered vehicles that for some reason or another didn’t get a final sell. The dealers themselves evolved the mass inventory idea as a marketing tool to show a particular dealers strength. The bigger the inventory, the better the deal. The chip shortage and Covid have finally given automakers an oppportunity to end what has long been a buyers market. Last June (2020) I bought a new 2020 Kia Optima for $16800 out the door. I can’t buy that same vehicle today, used, for that price. The days of buying a car at a deeply discounted price are forever gone. I think this will give foreign automakers an edge because makers like Hyundai and Kia give more content in their vehicle at lower prices. Now they won’t have any reason to discount their cars at all. Now, dealers who could still have large inventories will be selling much closed to MSRP and they too will be more profitable. And as usual, your customer with the least ability to pay these higher prices will suffer. I predict the return of popularity of the entry level sedan as people just can’t afford the premium prices the SUV’s command.
We’re forgetting about INFLATION. It’s easy to sell a vehicle at a premium when interest rates are low; supply of both new and used vehicles are low; home values are high (easy to tap into equity); inflation is being pitched as a temporary phenomena by the Fed; and credit is readily available. Eventually, one (or more) of the following will occur: interest rates will go up to combat inflation, the UAW will negotiate higher wages to account for inflation, energy costs will skyrocket because of inflation, and/or customers will be forced out of the market as the result of inflationary pressures.
I predict that Ford will fill car lots and offer substantial discounts again, whether they want to or not. I just hope that my current F-150 will last until that day comes.
If someone knows more about promised productivity under UAW agreements, that would be interesting to hear. I’m guessing US automakers have to keep churning out vehicles even when buyers leave the market.
I’ve got a 19 year old Chevy Avalanche and was planning to replace it in ’22 and Ford(yeah, I know, brand loyalty) or Ram are dueling it out. I’ve kept it in great shape, done a bunch of major repairs myself, and love it. I can easily make tech improvements to make it last even longer if this becomes a reality because I can’t afford the features I need/want on a new truck at current MSRP+dealer markup.
Youre so stupid. Thats a brand new car and you want to finance another new car? Theres no way to waste more money. And major repairs on a 2019 new car? I’m so happy with my 2013 toyota that only needs oil changes and one brake pad change.
You’re the one that’s stupid. You can’t even grasp what he said. Explain how a 19 yr old Chevy avalanche is a brand new car…it’s literally older than your 2013 Toyota.
If the vehicle is made to order, what “value” does a stealership add to justify additional costs?
If this is how business is gonna be I just stopped buying new ! Let them go out of business because I really don’t care ! They will reap what they sow !
I don’t buy this. People are stupid impulsive when it comes to car buying. How many people come in with one budget and walk out with a higher trim because that’s what’s available or they just decide they like the higher trim? Or how many people walk in just to look but then can’t resist that new car smell and gotta have it now? They lose such a high percentage of sales from people who drive back off the lot in their old car. Most don’t come right back and buy.
I’m not that way, I’d rather order exactly what I want but I have been in a position where I needed a pickup right away and was happy to have options. People’s cars break down, get totalled, etc every day. There has to be a reasonable inventory if I’m ever in that position otherwise I’m going elsewhere, even to another brand.
Because of all the extras that are being put on cars these days, not as options but as part of the basic car package, people are not only paying more for their cars, they are also paying the hidden cost….higher insurance costs and more interest over the longer loan lives.
Something needs to be done in the automotive industry to reduce the cost of the cars. Whether that’s this new Ford model or something else, something needs to be done to get the car prices under control.
The big issue is that Ford is TERRIBLE at this business model. Ask anyone that has ordered a Bronco, Maverick Hybrid, or Lightning F-150. Even assuming your order actually gets built, the dealerships don’t honor the prices Ford sets when people have placed reservations and even when they place the orders at the dealerships. Furthermore, most people buy cars and want them at the time of purchase. Very few people tolerate 2 month waits (or in the case of Broncos we’re talking years). Ford moving to a build-to-order model would be the death of Ford because unlike Tesla, the dealerships control Ford 100%, not the other way around.
Maybe it might be time for the auto industry to begin a transition towards the Tesla sales model where the middleman (dealerships) are eliminated and buyers purchase directly from the manufacturer. The manufacturer would have more control over the sales price of its vehicles, could generate more revenue/profit by keeping some of the dealership markups for itself. This could be a win-win for the manufacturer and buyer. Higher sale price for the manufacturer, lower purchase price for buyer.
The reality of it is, all the dealerships have had a great opportunity to unload all their overstocked inventory at a premium price and now will continue to take advantage of the public thru special orders at elevated prices.
This is just ignorant dreaming on the part of Ford. Competition will push them to fill the lots and discount pricing to remain in business. A few will fall for the marketing BS and wait months for their special order. Everyone else will vote their wallet and head over to Chevy, GM, Ram, Toyota, Nissan…..
Ford model will cause their failure. It’s amazing that Jeep can crank out Wranglers yet for can’t even produce the Bronco that was supposed to crush jeep sales…As much as I love the Bronco Ford lost my business with their ridiculous ordering wait. I can custom order a Wrangler and it will take 2-3 months, not 1-2 years. My favorite thing is that they keep marketing the hell out of vehicles they can’t even produce. A new Bronco raptor, bronco everglades, etc is coming… try making the new basic ones first before you try special editions. Then their is the out of control dealer network. But at the same time if there are people stupid enough to pay over msrp why wouldn’t you sell em over priced….
Your kidding me? 1-2 years wait for a Bronco? Geez, by the time you get your Bronco, the model year could already be 2 years old. It depreciated 2 years and the buyer hadn’t even put 1 mile on the odometer!
Vehicle prices are already high enough and almost not affordable to the average person without carrying 7 years or more of finance debt. This plan by Ford will result in higher prices because lower dealership inventory will encourage less negotiating.
But on the other hand, the Ford plan might also result in lowering the vehicle prices paid by the buyers.. Remember the days when cars were plain Jane and the buyer added options to get the car and price he wanted? This might happen again. That is one way the buyer can to an extent, control the cost of the car being bought. Loading cars with luxury items has been one of the reason car prices have go up so much during the past decade.
This made to order will not work. I want to see and look over the vehicle I want to buy. Especially the F150. I want to see the truck I’m getting and I would want to have it today, not in a few months. I’ll just go to another manufacturer’s lot. Ford you are making a bad mistake with that decision. How long fo you think you process will last when the F150 loses it’s 45 year sales at #1 in the nation. I certainly will not play that game! Good luck!
While it is easy to beat up on the fools that are buying the latest and greatest and need to have it now, some people can’t wait to get another car. There are 5M accidents a year and about 350k are a total loss. Add in natural disasters (especially floods) that wipe out entire local populations of vehicles, the number of newer drivers needing a first car, and the old cars that just die of old age, and there are a great many people that need to buy a car. Can they buy used? Yeah, but I think I read here that the average used car price is $27k. That isn’t much of a discount off new. I feel sorry for anyone that NEEDS to get a car now. It is a terrible time to be a consumer. But when will it get better? If you decide to wait out the automotive storm, inflation may drive the prices even higher.
But the mistake that Ford, etc. is making now is that they are selling to a crowd that can pay the higher prices. This won’t last. Deeper pockets will be sated over the next couple years. And then the Wal-Mart crowd will need a car. Then what happens? I don’t see this going well over the next 3-4 years for the auto companies. Short-term gain, long-term loss.
It’s been my experience that going to a dealership to check out and sit in a new vehicle frequently leads to a test drive which almost always leads to a buy.
While I’ve been scoping out new vehicles on line, I haven’t gone to any dealerships because they have no inventory. So unless my truck literally dies, I see no way of buying anything in the next year or two at least.
If this CEO of Ford thinks made-to-order is a profitable business model, he’s probably the same guy who thought killing off the Ranger 15 years ago and ceding the small truck market to Toyota was a brilliant idea.
Ford is playing with fire they will be back in trouble every time they have a few good years They go and ruin it And they shouldn’t be put all there apples in trucks and electric
Cool…I will keep my car 10 years in place than 3…
AND THE CONSUMER GETS SCREWED AGAIN…
REMEMBER TO THANK A BIDEN VOTER EACH DAY!!!
THE BIDEN/DEMOCRAT ECONOMY !!!
I wouldn’t be surprised if that’s what they’re doing already. They’ve wanted to get rid of rebates, and our expectations of rebates, for a long time I bet the shortage isn’t as bad as they claim. Dealers love it also. Never mind the dealer mark ups, just getting invoice is a new thing. That wouldn’t be possible if there was a lot full of Broncos, Mavericks and F-150’s. The only way to stop it is too stop buying. It’s not just cars either.
Ford needs to bring back the Flex,it is definitely as you age the easiest vehicle to get in and out of! Mine is a 2012 and I always had ford suvs,explorer,expedition and the excursion,which I drove for 10 years! A salesman told us that the flex was the easiest vehicle to get in and out of.but I didn’t care for the solid color,so I got an explorer,liked it but it really wasn’t as convenient to get in and out of,then I came across a flex two tone titanium! It was the one ,bucket seats second row,everything power. Love,Love it,call it my mini excursion,can haul about anything in it because I can fold all my seats down with a touch of a button.People can’t get over how much room it has! Mine has over 100 thousand miles on it and I can’t find one with all the bells and whistles,plus bucket seats in the middle!!Sad,Sad Ford messed up,bad decision,plus you didn’t realize or advertise all of its features and pluses!! Nothing else Interested me and I have been looking!!
This model will not work long run if buyers have to wait 9 months or more to get their vehicle built. Brand loyalty will go only so far and buyers will not wait indefinitely for a new vehicle. I will bet Hyundai and Kia will break this model especially since Hyundai has state they will make their own chips. Ram will manage to fill CDJR lots full of new pickups to gain even more market share from Ford and GM.
Crap! I expected an announcement Ford had come to its senses and was bring back the F100 with a 4cyl Japanese diesel that my kids could use for 50 years like the last one did.
After reading this article, most Americans cannot afford to spend 50000 dollars plus for a car when incomes have not leveled with increased pricing. Ford and most companies state side are gouging the United States families. Ford corporate executives are myopic this is a world of free capitalism not a communistic command economy planning. Wake up and remember when all of the world get back on their feet supply and demand economics will equalize greedy corporations and their high pricing strategies.
Ford didn’t take a government buyout..my family only buys Fords.
That was 13 years ago. Get over it…
There is something in business called the “prisoners dilemma.” Essentially it means, in this case, that holding the line on prices and inventory only works if ALL competitors adopt the same philosophy. Automakers have tried this in the past and it failed miserably. All it take is for one automaker to start offering deals and incentives and the others will soon follow.
It don’t matter how you look at, the bottom line is that a business is to make a profit,like I say a long time ago,it just a number game,so if you want a huge discount, the dealer will raise the msrp and add dealer installed options and then work off that price,I use to work for a new car dealer, example , installed lift kit on a 4 wheel drive,3k for the kit, dealer markup, 18k, upholstery scotch guard,250 dollar markup, bought at Walmart for 14 dollar, pinstripe,150 dollar markup, cost 5 dollar and l can go on and on
When you see car price go back to normal,that’s when you will also see gas go back below a dollar ,so keep waiting
How do you think Ford ( as well as other manufactures ) is paying for R&D and new plants for EV vehicles, and how do you think the dealers are paying for their upgrades, training, equipment, etc., to be able to handle EVs? By ripping you off and making you pay more for an ICE vehicle, so later on they can rip you off buying an even more expensive EV vehicle, that the government has mandated that that is all you will be able to buy, new.