Anybody who gambled on a robust rebound from the 2007-2009 recession ended up badly disappointed. But the time may finally be right to bet on a recovery built to last.
Ford (F) is investing $80 million to beef up its Kentucky Truck Plant in Lousville, an expansion that Ford says will create 350 new jobs. The plant produces heavy-duty versions of the F-150 pickup, which makes the expansion a hopeful sign for the whole nation. “Trucks are really tied to the underlying growth of the economy,” Joe Hinrichs, president of the Americas for Ford, tells me in the video above. “All the kinds of work we do with these trucks are fundamental to growing the economy.”
Pickups, of course, are the vehicle of choice for contractors, oil workers and many others who toil with their hands. Overall pIckup sales rose by 12.1% in 2013, and Ford led the pack with a 20% jump in pickup sales. The F-150 was the top selling vehicle in any category, as it often is.
The outlook is strong for 2014 as well, with forecasters predicting total auto sales of about 16.4 million vehicles during the year. That would be the highest level since 2006, and a decisive rebound from the low point of about 10.4 million sales in 2009. Ford is well-positioned for that recovery, with a new F-150—the first pickup built of lightweight aluminum—coming late in the year, and several other important product launches due, including a new Mustang.
The danger for automakers has always been too much of a good thing. When sales are strong and profits healthy, there’s often intense pressure to flood the market with vehicles, grab market share, and, in theory, boost profits even more. The problem occurs when all the automakers pursue the same strategy, leading to an oversupply of vehicles and sharp discounting to move the metal.
Overcapacity was one contributor to the auto-industry wipeout that occurred in 2009, when General Motors (GM) and Chrysler declared bankruptcy, requiring federal bailouts to survive. Ford didn’t skid quite that badly, but it still lost a whopping $30 billion from 2006 to 2008, forcing it into a wrenching turnaround plan.
That process is largley complete. A strong performance in North America and Asia in 2013 helped Ford notch an annual profit of $7.2 billion, a 26% improvement over 2012. Europe and South America were weak spots, as they are for several big automakers, given shaky economic conditions in those regions.
Ford’s stock has lagged the broader market during the last few months, since many analysts think earnings could level off this year as high-profile product launches push up costs. Still, the stock has surged by more than 700% from the dark days of early 2009, when it seemed possible that Ford might join its crosstown rivals in bankruptcy.
To prevent irrational exuberance, Ford plans to open no new plants in North American in the foreseeable future, expanding, when necessary, by adding capacity at existing facilities--as it’s doing in Louisville. “We’re squeezing more and more out of what we have,” says Hinrichs, “and growing capacity within our existing footprint.” If things go as many economists hope this year, that could add up to a lot of squeezing.
Rick Newman’s latest book is Rebounders: How Winners Pivot From Setback To Success. Follow him on Twitter: @rickjnewman.
- Automotive Industry
- Consumer Discretionary