There is a lot of breaking news in supply chain today which I will attempt to partition in separate postings. However, true to our Friday traditions on this blog, I want to begin by highlighting our more positive news series, which today features the automotive sector.
Earlier this year, U.S. automakers had been implementing efforts to reduce finished-goods inventories. Now, as a direct result of the “cash for clunkers” stimulus program within the U.S., automakers are now raising production levels. Ford Motor Company announced that it will increase production for the remainder of 2009. Ford indicated it will produce an additional 6000 Focus sedans by adding overtime and a Saturday shift, and an additional 3500 Escape small SUV’s by reversing plans for a planned two-day shutdown. These actions will position Ford to increase production 18 percent in the third quarter, and 33 percent in the fourth quarter. At the end of July, finished inventories of the Focus dropped to 25 days, while inventories of the Escape dropped to 21 days. An article in the Wall Street Journal, Car Plants Bet on Sales Rebound (subscription may be required) indicated that that a supplier in Germany, Getrang Transmission, was airlifting automatic transmissions to Ford in order to keep Escape production lines operating at increased levels. General Motors and Chrysler have both indicated that they are reevaluating their previous production plans and will soon announce increases as well.
While all of this new increased sales activity has been driven by governmental stimulus, U.S. industry executives are naturally cautious is to whether current increased demand will be sustained. From where I sit, these are positive developments since increased demand will work its way back through other tiers of the U.S. automotive supply, providing suppliers some breath of financial relief, which could not come at a better time.
There is more positive automotive news outside of the U.S. Another Wall Street Journal article, Brazil Car Makers Leave Slump in the Dust, indicates that a rebound in the Brazilian auto industry has been swift and widespread. A combination of various government incentives have boosted industry demand First half sales have set a record, and an industry association now forecasts Brazil’s domestic auto sales to be its highest-ever, amounting to three million vehicles.
Brazil joins the ranks of China where stimulus programs have boosted automotive demand and various automakers continue to ramp-up production.
The one missing region is Europe, where high levels of finished inventory need to be reduced before production levels can incrementally be increased.