Ater returning from a week’s vacation the in-box was piled high with the media madness that had transpired while on R&R.
The headlines screamed that Ford had cut production of its monster Excursion sport-utility vehicle because consumers had stopped buying them out of fear of higher gas prices and the fact that big SUVs tend to eat little vehicles on the road for lunch.
We decided to call Ford to offer a hearty ha-ha for misjudging consumer demand and foisting those huge gas-guzzling, car-munching land yachts onto the public.
But before dialing, we took a closer look at the announced “cutback” and realized that what some media were calling failure was, in fact, success.
Equally important, the Excursion episode served to prove that the new industrywide philosophy of building derivative models off the same platform in the same plant is functioning as designed to ensure automakers make money rather than lose it.
Ford builds the full-size Excursion and the full-size, super-duty pickup truck at the same plant in Kentucky. The SUV is an enclosed cabin derivative of the open-bed truck.
Used to be that if Ford or General Motors or Chrysler was going to build a truck, it designed and developed a truck and built a plant to produce it. If it was going to build a sport-ute, it designed and developed a sport-ute and built a plant to produce it. When demand for either declined, workers were laid off and rebates were offered to resurrect sales and bring workers back.
Now, rather than two plants building 200,000 vehicles each, one plant is designed to produce 200,000 to 400,000 vehicles. To ensure the plant operates at capacity (which means profitably), the plant produces one primary vehicle in volume and one or more derivatives off that same platform in limited numbers.
Ford has reduced output of the Excursion at Kentucky–or at least it plans (in August) to trim production to nine units an hour from 12. However, it will increase output of the super-duty truck to 71 units an hour from 65–a gain of six units an hour. In building fewer Excursions, plant output rises by three vehicles an hour. On an annual basis, the plant will build 17,000 fewer Excursions but 35,000 more super-duty trucks for a net gain of 18,000 vehicles annually.
When Ford began selling the behemoth Excursion, it forecast annual sales of 45,000 to 50,000 units a year, which most considered alarmingly high. But in case demand exceeded the forecast, it geared up to produce 12 units an hour, or a potential for more than 65,000 units for the year.
With the planned “cutback” starting in August, Ford will now produce nine Excursions an hour, which translates into 50,000 units a year, the original target.
Hmm.
But what about Excursion? Have consumers given up on it, based on high gas prices and an alleged tendency to make meals of other vehicles on the road? This is an example of consumers simply exhibiting something for which they don’t often get credit: common sense.
The huge Excursion has four doors and two rows of seats and a cargo hold. The equally huge super-duty pickup also can be purchased with four doors and two rows of seats and a truck bed.
Excursion tows your biggest boat. So does the super-duty truck. Excursion sells for about $40,000, the super-duty for about $30,000.
So consumers get four doors and two rows of seats and a truck bed and still can tow that biggest boat in a vehicle that costs about $10,000 less than an Excursion. Fear over gas prices? Fear over big SUV terrorism on the road? Nope, Economics 101.
But what about those headlines screaming that high gas prices have sent consumers scurrying for super-duty trucks rather than Excursions? The Excursion and the super-duty share the same V-8 and V-10 engines. Fear over big SUVs? The super-duty truck isn’t any smaller or lighter.
“In the old days, rather than reduce Excursion production, we would have raised incentives on the vehicle and raised the price on the super-duty to balance production with demand. With derivatives we now can simply adjust the production mix,” Pipas said.
Guess the system works after all.
