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Ford CFO says growing dealer inventory 'worries me'

Breana Noble, The Detroit News on

Published in Automotive News

Ford Motor Co. on Tuesday issued a warning sign on rising dealership inventory levels across the industry.

"It worries me that the stocks are building," Lawler said during the Deutsche Bank 2024 Global Auto Industry Conference. "We haven't seen that impact so far, but we are watching it very closely."

For years, insufficient inventory had been a concern as COVID-19 shutdowns, supply-chain snags and strikes held up production and pent-up demand kept cars rolling off dealer lots. With orders now satisfied, vehicle prices remaining high and interest rates also up, new vehicles are piling up.

Lawler, who recently said he will leave his CFO role in early 2025 to become Ford's vice chair, said Ford is targeting 50 to 60 days of supply on dealer lots. Ford in April had 100 days' supply, above the national average of 76, according to auto industry analytics firm Cox Automotive Inc.

"So far the consumer has held up pretty well. Pricing has held up," Lawler said. "We're at a point in the industry where we need to be very thoughtful about how we proceed from here and watch our production relative to supply very closely and the stocks on the ground at the dealers."

What's helping the Dearborn automaker, which posted an 11% year-over-year sales gain in May, is new product in Ford Blue, the company's internal combustion engine and hybrid business. It will have refreshed 60% of its lineup by the end of the year. Products not built to meet consumer needs, he said, are called "the ones with pink polka dots."

"If you get into the situation where you have a lot of vehicles that we call the pink polka dots, you're gonna run into trouble, so we're watching it closely," he said. "It hasn't been a contagion onto us yet. We're still seeing strength and I think primarily because much of our product is new."

 

Ford, though, has been planning for a 2% top-line pricing reduction this year. Although the first quarter remained strong, "there's a bit of increasing pressure and I think you'll see that flow through in the second half of the year," Lawler said, noting the percentage of monthly household income required to purchase a new vehicle has withdrawn back to around 13-14%, down from 14-15% during the pandemic.

The severest price compression of more than 20%, though, is in Ford's Model e electric vehicle division, Lawler said. Cost reductions have failed to keep up. The hope is in the automaker's second-generation EVs, though the launch of a new three-row SUV recently was delayed by two years as the automaker awaits improvements in battery technology, specifically batteries with less nickel.

"When you look at this year, we're going to continue to have cost reductions," Lawler said. "And for Model e, the question is: Is the pricing going to stabilize, or are we going to continue to see downward pressure on the top line? So, we plan for additional price compression in the e segment through the rest of this year."

Ford remains on track for a $2 billion cost reduction this year, he said, though most of that will be shown in the 2025 model year from materials. He also said there's no change to the automaker's $10 billion to $12 billion full-year adjusted operating earnings guidance.

GM on Tuesday announced a $6 billion buyback share program. Lawler reemphasized Ford's commitment to pay 40-50% of free cash flow and that executives' long-term compensation is tied to shareholder returns.

"The amount of disruption we're seeing in the industry right now brings with it risk that brings with it tremendous opportunities," he said, "but you have to be in a position to take advantage of those opportunities and long-term creative growth."


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