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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Can be paired with every paint color except black. Obviously.
Matching green and everything.
A cool and rarely-seen performance sedan.
A move attributed to soft demand.
Based on the F-150 and Super Duty.
Hoping to get it wrapped up by SEMA.
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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.
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)
Amen !
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 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.