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A Little Slowdown Isn’t Necessarily A Bad Thing, Suggests Ford’s Hinrichs

Americas chief says it helps keep capacity and demand in line – and maintains discipline.

by on Oct.16, 2013

Joe Hinrichs, Ford's president of the Americas, said the recent slowdown in sales may have been a good thing for automakers.

Whether you call it a statistical fluke or not, September saw U.S. car sales slow down a bit, and there are some signs that October could come in weak, as well, as a result of the government shutdown and deficit battle.  But at least one senior industry executive isn’t entirely upset.

The unexpectedly strong pace of the U.S. auto industry’s growth during the first eight months of the year threatened to stretch capacity to the limits, says Joe Hinrichs, Ford Motor Co.’s President of the Americas. Worse, it could encourage “certain behaviors” that nearly drove Ford into bankruptcy much like cross-town rivals General Motors and Chrysler.

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In a wide-ranging interview with TheDetroitBureau.com, Hinrichs acknowledges that “Our competitors and we all thought September would be stronger than it was,” car sales declining 4.2% for the month, the first time volume had dipped on a year-over-year basis in 27 months.

Like many of those competitors, Hinrichs downplays the decline, at least a bit, noting the peculiar nature of the industry’s October sales calendar that bumped all Labor Day weekend business into strong August. The real test could come in October, and the still boyish-looking executive says it is “still too early” to see what impact the government shutdown and threat of a default might have, though he remains confident federal lawmakers will reach a last-minute compromise.

In a way, even a modest slowdown could be a good thing, according to Hinrichs.  Ford has struggled to keep up with booming demand that nudged the market well above the original 2013 consensus forecasts. Recent months have seen the annualized sales rate surge to nearly 16 million. And for Ford, in particular, that has meant struggling with shortages of some key products, such as the Fusion, Explorer and F-Series.

The maker recently added a shift at a key pickup plant and has launched production of the Fusion at the plant in Flat Rock, Michigan that was, until last year, operated in a joint venture with Mazda.  So, at this point, says Hinrichs, “We feel really good where we are,” in terms of available capacity.  As more product reaches dealers, “We’re healthy where we are with inventories now.”

The auto industry has traditionally been ruled by boom-and-bust cycles, though the recent Great Recession has had many industry planners plaintively pleading for greater stability. Hinrichs is among them.

“In general, steady growth is much easier for the industry to handle, especially the supply base,” he suggests, adding that a market of 16 million that flattened out over the next few years would be “healthy for everyone.”

If anything, big booms in demand often lead to bad behavior as makers race to maintain their market shares.  Industry analysts contend Ford was particularly guilty of this, often ramping up incentives to the point they were unsustainable, at least if the maker wanted to stay in the black – never mind deliver the 10% returns it has been generating in the Americas. While Hinrichs didn’t directly address Ford’s past incentive practices, he clearly acknowledged it didn’t always engage in the best practices to prop up market share.

“That margin focus will us because there are certain behaviors you don’t get into” anymore, he contends. And while some skeptics note that Ford has increased incentives, Hinrichs insists they are not out of line, especially when considering the way Ford’s average transaction prices, or ATPs, have also risen.

Maintaining “discipline” when the market is hot will also pay off when the industry cools off, he adds, noting how bad things got in the years leading into the recent downturn, the worst automotive recession in decades.

“The (Detroit) companies didn’t known how to make money at a lower volume,” says Hinrichs, admitting the makers didn’t really do all that well even at the peak of the market. “Today we know how to make money” even in leaner years.

(Ford bucking trend by exporting more vehicles to China. For more, Click Here.)

Many of the necessary changes were implemented upon the arrival of Ford CEO Alan Mulally, the former Boeing executive who came to Detroit in 2006.  One of the biggest questions facing Ford right now is how long Mulally will stick around.  He has expressed plans to remain with the Detroit maker until the end of 2014, but there have been widespread reports that he might depart a bit early to take over from Steve Ballmer as the chief operating officer of Microsoft.

To no surprise, Hinrichs offers little insight into Mulally’s plans, nor on the succession strategy Ford has put into place.  While Mark Fields, former head of the Americas operations and now chief operating officer, is considered the shoe-in to replace Mulally, Hinrichs is considered a strong alternative. And, at the very least, the 46-year-old is expected to have a bright future at the second-largest U.S. maker.

(Click Here to read about Ford teaming with U-M on battery lab.)

One thing seems certain, he has clearly bought into Mulally’s strategy which emphasizes not only tighter financial discipline but which also focused on barring the sort of political infighting that troubled the automaker since the days of Henry Ford.

Forgetting the lessons of the past few years, says Hinrichs, might lead Ford “to do things (we would) regret long-term.”

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