Farley on maximizing profit

[Djd7]

agree this is a smart move to offset lower volume from constraints.

but within a specific vehicle model, e.g. F-150 or Bronco, and you have enough chips/commodities to build either a base/XL or Badlands/Lariat.. why not build the Badlands.. profit margin is known to be higher on higher trims. realize that some higher trims require more chips, but typically very small incremental over lower trim


"We’re still in the teeth of it," Farley said. "I think this year will be very challenging for semiconductor availability. We’re maximizing production in our most profitable vehicles. That’s helping offset the loss in production, but it’s a very persistent problem."


https://www.foxbusiness.com/politics/ford-ceo-on-white-house-mtg-ev-tax-credits

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[Toccoa]

explains a lot...

"We’re still in the teeth of it," Farley said. "I think this year will be very challenging for semiconductor availability. We’re maximizing production in our most profitable vehicles. That’s helping offset the loss in production, but it’s a very persistent problem."


https://www.foxbusiness.com/politics/ford-ceo-on-white-house-mtg-ev-tax-credits

He’d be an idiot to not do this. You need revenue to offset loss of sales and rising costs. This is the easiest way to do it. Sell more of what makes you the most money.

 

[Kos]

explains a lot...

"We’re still in the teeth of it," Farley said. "I think this year will be very challenging for semiconductor availability. We’re maximizing production in our most profitable vehicles. That’s helping offset the loss in production, but it’s a very persistent problem."


https://www.foxbusiness.com/politics/ford-ceo-on-white-house-mtg-ev-tax-credits

That translates to we're building Broncos and F-150s instead of Escapes and Edges

 

[Djd7]

That translates to we're building Broncos and F-150s instead of Escapes and Edges

you don't think within a specific vehicle they are maximizing the most profitable trim levels? that would be stupid of them not to just as @Toccoa said

 

[Djd7]

agree this is a smart move to offset lower volume from constraints.

but within a specific vehicle model, e.g. F-150 or Bronco, and you have enough chips/commodities to build either a base/XL or Badlands/Lariat.. why not build the Badlands.. profit margin is known to be higher on higher trims. realize that some higher trims require more chips, but typically very small incremental over lower trim

 

[Stampede.Offroad]

...
We’re maximizing production in our most profitable vehicles. ...

Yeah, that's why they stopped making 'cars'. Nothing new here.

 

[Djd7]

Yeah, that's why they stopped making 'cars'. Nothing new here.

read the comment about trims, damn 6g can be as dense as the FB group

 

[710-oil-614]

I don't mind it. My Base Bronco is still getting built (maybe haha) and my MavBrid XL will get built at some point.

 

[Kos]

you don't think within a specific vehicle they are maximizing the most profitable trim levels? that would be stupid of them not to just as @Toccoa said

I'm sure there is some of that going on as well, but at the very beginning of the pandemic/chip shortage he specifically talked about prioritizing at the model level.

I would only discount prioritizing higher trim levels for the following reasons...

- Higher trim levels require more chips, so its a balancing act of do I sell more units at a lower margin per unit or fewer units with a higher margin. I'm sure the bean counters have run the #'s, but given that every vehicle is getting a premium right now, more lower trims might be be the better option

- Right now, an unusually high % of new vehicles are special orders which means the customer is deciding what trim/options. Not much is going into dealer inventory.

 

[Drex]

He’d be an idiot to not do this. You need revenue to offset loss of sales and rising costs. This is the easiest way to do it. Sell more of what makes you the most money.

you don't think within a specific vehicle they are maximizing the most profitable trim levels? that would be stupid of them not to just as @Toccoa said

Nope, the choice is seldom to sell the most you can of the highest profit maker per unit.

If the commodity restraints allow you to build 5 high end vehicles with profit of $50000 in total or 8 lower end with profit of $54000 then you would be better off building no high end units. The truth is that there is a blend of high and low end vehicles across the entire line, with trims and options adding and subtracting, such that profit is maximized in the short term. It won't be either/or high/low, but a mix of both.

 

[Big Boss]

Nope, the choice is seldom to sell the most you can of the highest profit maker per unit.

If the commodity restraints allow you to build 5 high end vehicles with profit of $50000 in total or 8 lower end with profit of $54000 then you would be better off building no high end units. The truth is that there is a blend of high and low end vehicles across the entire line, with trims and options adding and subtracting, such that profit is maximized in the short term. It won't be either/or high/low, but a mix of both.

This ^ and also need to keep the line moving. Idle factories don't make anything, if your not making anything your not making money.

 

[Toccoa]

Nope, the choice is seldom to sell the most you can of the highest profit maker per unit.

If the commodity restraints allow you to build 5 high end vehicles with profit of $50000 in total or 8 lower end with profit of $54000 then you would be better off building no high end units. The truth is that there is a blend of high and low end vehicles across the entire line, with trims and options adding and subtracting, such that profit is maximized in the short term. It won't be either/or high/low, but a mix of both.

You're agreeing with me. Sell more of what makes you the most money. Whatever that blend is, sell it. 8 Big Bends, do it. 5 Wildtraks. Do it. 5BB and 3WT, do it.

Note: This disregards marketshare bragging rights that are sometimes placed in front of profit.

 

[JerryC]

Also, more vehicles is more opportunity for service, extended warranties, service plans, accessories, financing, etc ...

 

[heynow14]

Ford will, with 100% certainty, choose to build a $60k Loaded Badlands over a $38k base. Ford will make an order of magnitude greater profit on the top-end model.

Perhaps contrary to what some believe: shareholders will be taken care of first, dealers second, end-users a distant third. Business 101 folks.

 

[phocion]

We really don't have enough insight into the details of Ford's business to know what mix of Bronco trims will maximize profit. A lot of variables there. They do have that insight. Also they certainly take into account more than just revenue minus cost of parts. Marketing, sales, public relations, labor relations, dealer relations, etc. factor in to their decisions.

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