PRODUCTION TROUBLE IN CHICAGO SLOWS ’20 FORD EXPLORER SALES
CEO Hackett says ‘design problem’ behind ramp down of profitable vehicle
Last spring and summer, Ford spoke excitedly about the massive, compressed reengineering of its South Side plant in preparation for the 2020 Explorer SUV. The work cost a billion dollars, resulted in a thousand new jobs and required just a month of down time.
But in releasing third-quarter earnings, Ford officials confessed: They botched it. Just like them, the Chicago plant, 12600 S. Torrence Ave., is under pressure to perform better.
The company said quality problems on the Explorer production line forced it to send vehicles 260 miles to a plant in Flat Rock, Michigan, to be fixed. With shipments to dealers delayed, Explorer sales fell 48% during the quarter, contributing to an overall 2% decline in revenue for the company, to $36.99 billion compared with the third quarter of 2018.
“We have higher expectations for our performance,” CEO Jim Hackett said on a conference call with analysts Wednesday. He explained: “But the challenge, what I call the design problem, is that we had to ramp down a really profitable vehicle. We had to clear out the plant, literally bulldoze everything out, build a new plant inside, get it started and not drop any volume in the midst of that. So it was pretty aggressive. And, as I look at that, I want to win like that in the future. But we fell short in a few ways.’’
Joe Hinrichs, Ford’s president for automotives, said the main issue was the Chicago plant’s lack of space to keep vehicles needing repairs. The Flat Rock plant has the capacity, and company executives said it has been used before to address production issues.
In the Explorer’s case, the 2020 model was switched from front- to rear-wheel drive, and it got a gas-electric hybrid engine. In bringing it to Chicago, the plant had to be reconfigured because it was set up for the old Ford Taurus sedan, now discontinued.
“We, simply put, we took on too much. We signed up for too much at launch,” Hinrichs said.
The company said production of the Explorer and the similar Lincoln Aviator is nearly at full capacity, with dealers having ample inventory. Executives said most vehicles are going to dealers direct from Chicago.
Among the problems are loose wiring harnesses, gear displays that aren’t activated, faulty seats and an improper shifter cover. In addition, Consumer Reports said it bought a $63,400 Lincoln Aviator with a bad digital display.
Bloomberg News reported Monday the
Chicago plant, which in years past has been the subject of complaints about racial and sexual harassment, has ongoing personnel issues affecting production. Citing sources, Bloomberg said “roving groups of workers” are intimidating other employees, although it didn’t say for what purpose.
Company spokeswoman Kelli Felker said the report was inaccurate. “We take those allegations very seriously. Despite a number of methods available for employees to report concerns, we are not aware of any issues like those described,” she said.
Plant workers are represented by United Auto Workers Local 551. Leaders in the local could not be reached or did not respond to a call. A spokesman at UAW headquarters had no immediate comment.
The union is tallying through Friday ratification votes for its proposed contract with General Motors. If the contract is approved, the union will move on to bargain with another of the Detroit Three automakers, either Ford or Fiat Chrysler, as soon as next week.
In 2017, Ford agreed to pay up to $10.125 million in restitution to victims of racial or sexual harassment at the Chicago plant and its Chicago Stamping Plant in Chicago Heights. The payment settled charges brought by the Equal Employment Opportunity Commission.
The company paid $18 million for damages and training to settle similar charges in 1999.
In its third-quarter earnings, Ford said net income tumbled nearly 60% as the company booked $1.5 billion in charges mainly for restructuring, and Chinese and U.S. sales fell.
It knocked a half-billion dollars off its fullyear pretax earnings guidance. Ford now says it will make between $6.5 billion and $7 billion, or $1.20 and $1.32 per share.
Ford’s net income from July through September was $425 million, or 11 cents per share. Excluding restructuring charges, the company made 34 cents per share. That soundly beat Wall Street estimates that averaged 26 cents per share.
Still, the results were a setback for Hackett, who was named CEO in 2017 after a career leading office furniture maker Steelcase. He has promised to make Ford more nimble and has called its product development “constipated.”