Change of gear and direction for Ford

The market mechanism at work!

Ford Motor has announced in the wake of a second quarter loss of nearly $9bn and a double-digit decline in US car sales volumes that it is shifting its focus from pick-up trucks and fuel guzzling sport-utility vehicles towards smaller, more fuel-efficient passenger cars. It will bring six small European models to north America, and convert three existing truck and SUV assembly plants to small cars. It also plans to accelerate the introduction of a new fuel-efficient V6 engine and to double four-cylinder engine capacity.

There are costs involved in revamping production, re-tooling the factories that previously assembled SUVs and writing off assets that can no longer be used in making the smaller vehicles - but the aim is to reduce operating costs by $5n over the course of the next couple of years. This is a good mini case study in one of the factors that affects elasticity of supply - i.e. the cost and ease with which factor inputs can be switched to produce different goods and services. The issue of how the motor sector is adjusting to changing consumer preferences is a good application of the concept of allocative efficiency.

Production of the Ford transit van in the UK is currently under review This BBC news article looks at how some of the world’s biggest volume car-manufacturers are adjusting to falling demand and heavy losses.

The Guardian: Ford downsizes to beat the car industry crisis