American automakers can build small cars profitably.
They just can’t build them in America.
Instead, they build them in places like Brazil. That’s what Ford is doing.
It has built one of the most advanced factories in the world in Brazil. This factory is a flex-factory. In other words, it builds multiple cars – five to be exact – on the same line. So if demand drops for one car and increases for another one, Ford can rapidly alter its product mix.
Result? No inventory build-ups of cars that aren’t selling. And more supply of cars that are selling.
Flex factories are great. But Ford doesn’t have many of them in the U.S.
That means anytime it wants to switch a plant that builds SUVs to one that builds small cars, it has to spend hundreds of millions over the course of a year just to retool the plant.
That’s wasted money and lost productivity.
And it’s a big reason why it’s hard for Ford, Chrysler and GM to build small cars profitably here in America.
Here’s another reason: Ford’s plant in Brazil is so huge, that over two dozen of its suppliers are built directly into the plant.
This is a big deal.
In America, Ford has to get parts shipped to the factory. If the shipping manager fails to order the right number of parts, Ford could wind up with either too many or too few parts on hand to build its cars.
The extra shipping costs, time, and inventory management all add additional layers of costs that makes building a car in America more expensive than a place like Brazil.
Having suppliers integrated into a factory helps reduce shipping costs and shrinks the cost of keeping inventory.
Plus quality goes up.