Experienced senior executives should know that given today’s more dynamic clock speed of business, the fortunes of any business and the consequent effects on that company’s supply chain can change rather unexpectedly. Thus are the current challenges facing Ford Motor whose stock closed yesterday at a level last seen two years ago.
This proud, family legacy, automotive OEM was the only U.S. big-three automotive manufacturer avoiding bankruptcy and bailout in 2008-2009, and consequently was viewed as the success story of the U.S. automotive industry. Ford now finds itself dealing with some increasing high profile challenges in both business and product dimensions.
Last week on the product front, Ford had to recall about 11,500 of its brand new 2013 Ford Escape SUV vehicles equipped with the 1.6 liter engine because of a serious potential for a fuel leak. This recall is significant for two important reasons. The first is the severity of the problem which motivated Ford to take the unusual measure of instructing owners to stop driving their vehicles altogether and make arrangements to have their recalled vehicles transported to local dealers for repair. Owners are offered a loaner vehicle while their vehicle is being repaired. According to a Reuters published report, the defect is determined to be a manufacturing flaw in fuel lines supplied by parts supplier T1 Automotive. Reuters reports: “Some of the fuel lines were "mechanically scored" at TI Automotive's plant in Ashley, Indiana, according to documents Ford filed Friday with the National Highway Traffic Safety Administration.”
In April, Supply Chain Matters featured commentary related to a major fire that occurred at an Evonik Industries AG manufacturing plant in Marl, Germany that had cascading impacts related to the overall global supply of nylon-12, a rare resin that is utilized in the manufacturing of fuel tanks, brake and fuel lines. Nylon-12 has been extensively used because of its superior capabilities to be highly resistant to the corrosive effects of gasoline and brake fluid. Evonik represented over 25 percent of the global supply of the building block specialty resin that eventually makes-up nylon-12, and was also a supplier to another nylon-12 producer, Arkema SA. Eight separate auto producers and 50 parts suppliers took the unusual step to meet in Detroit for purposes of drafting an alternative specification and sourcing plan in order to seek an interim replacement for nylon-12. Whether the Ford Escape fuel line issue was a consequence of this industry problem remains to be seen.
In addition to its 2013 model, Ford also recalled about 485,000 of the older 2001-2004 Escape model years to check for a damaged cruise-control cable that could cause the throttle to stick open. That recall involves Escape vehicles sold in both in North America and Europe, where this vehicle has the Maverick nameplate. The recalled vehicles are equipped with the 3.0-liter V6 engine and cruise control.
This week, Ford issued an additional recall concerning 8,266 redesigned 2013 Escape SUVs in the U.S. to fix carpet padding that could hinder proper braking. Ford indicated that wrongly positioned carpet padding could reduce space around the pedals and cause drivers to hit the side of the brake pedal when switching from the accelerator.
The 2013 Ford Escape was totally redesigned for 2013 to leverage Ford’s global single platform strategy, and represented one of the two critical product launches planned for 2012. This market introduction strategy now appears to be botched given the building amount of negative oriented news concerning the Escape nameplate.
This author has some first-hand consumer experience related to the 2013 Escape product launch since I was actively in the market shopping for a new SUV vehicle in the spring. I read of the new features of the redesigned Escape on Ford’s web site and registered myself for alerts to product availability at dealer showrooms, which was communicated by Ford in February to be “early spring, 2012”. Receiving no web updates for weeks, I made the effort to visit a number of local Ford dealers in late May in hopes of securing a test drive. No Ford dealer in my vicinity had inventory of this new model for consumers to physically view or test drive. It was evident that a good number of the former 2012 Ford Escape models were still sitting unsold on these same dealer lots. Did Ford hold back the availability of the new model from dealers to sell the former model inventory? Many of the Ford current TV commercials in the U.S. still feature the 2012 Escape model. Now, as the volume pipeline of the new model Escape is finally making its way to U.S. showrooms, this unfortunate timing of embarrassing product recalls adds a reason for pause among North American consumers.
On the global business side of Ford, the worsening economic crisis in Europe compounded by slowdowns in other economies such as China and Latin America are further impacting Ford’s bottom line. The company reported a 57 percent drop in its latest second-quarter earnings. Many automotive manufacturers operating across Europe have reported heavy discounts and pricing pressures within the market. According to a recent published article of The Wall Street Journal, Europe represents 30 percent of Ford’s global volume coupled with a presence of five final assembly plants. Ford now anticipates losses of $1 billion as a result of eroding sales and excess capacity issues in its European operations.
In the midst of an ongoing aggressive investment in manufacturing presence in China, that market is slowing as well. Operations in Latin America have been impacted because of efforts to undo free trade agreements with Mexico where Ford has pinned its export strategy for this region.
One of my favorite Don Henley tunes is titled “In a New York Minute”. It laments how quickly everything can change. For Ford, the headline of being the U.S. automotive success story now changes to once again dealing with difficult challenges in product, business and supply chain dimensions.
The learning for our supply chain management community is that the best tenet of agility- a resilient supply chain, is its ability to deal with both growth as well as business setbacks.