Ford is cutting down its small cars production, favoring SUVs

Ford (NYSE: F) and Fiat Chrysler Automobiles (NYSE: FCAU) are cutting production at some North American plants and increasing output at others. Ford’s assembly plant in Wayne, Mich., which builds the Ford Focus and C-Max small cars, will close for an additional five weeks through the end of the year, the automaker told Reuters. Most of the 2,500 or so workers at the plant will be laid off during the shutdown.

Such a move is believed to be driven by a slowdown in sales of small cars and rising interest in crossovers and SUVs, given that Consumers, responding to lower gasoline prices, continue to flock to SUVs, crossover and pickups of all sizes causing sales of conventional sedans and coupes to suffer.

We match production capacity with demand,” Ford said in a statement. “The small car segment is down approximately 10% this year, including Focus. Our plan has not changed.”

U.S. automakers are taking particular pains to balance sales, inventories of unsold cars and production rates in order to match consumer demand as closely as possible in the face of predictions by some analysts that the U.S. market is at a “plateau.”

Joe Spak, RBC Capital Markets automotive analyst, noted that Ford’s vehicle inventory was down last month from April but higher than a year ago when he was asked to comment on U.S. vehicle sales in May.

In addition, his report in June, whose results are supportive of their ‘plateau’ thesis, states that “although average transaction prices are still strong, incentives crept higher…We still see some risk to (vehicle) production” in the second half of the year.”

On the other hand, Wall Street analysts have responded that Ford hasn’t yet proven that they have lowered their break-even point for profitability and therefore can weather the next downturn in the U.S. market without experiencing deep financial losses. Hence, Ford is keeping a close eye on inventories, pricing and other components of its business to maintain credibility with Wall Street and investors.

“I absolutely think, and we think, we’re undervalued right now,” CEO Mary Barra said, “We’re going to continue to work to keep making sure people understand exactly the mission of General Motors and what we’re working toward. I believe that as we continue to do that, that’s something that will take care of itself.”

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