Ford Pumping Out More Profitable Big SUVs to Fund Its Future

(Bloomberg) -- Ford Motor Co. is spending $25 million more at its Kentucky factory to pump out more of the profitable big sport utility vehicles that are critical to funding its ambitious -- and expensive -- electric and self-driving vehicle plans.

The investment will allow the second-largest U.S. automaker to boost production of the new Lincoln Navigator and Ford Expedition by 25 percent from what the company was planning last fall, when the redesigned models first hit showrooms.

Ford Pumping Out More Profitable Big SUVs to Fund Its Future

“The Expedition and Navigator products are very important to both the Ford and Lincoln lineups,” Joe Hinrichs, Ford’s president of global operations, told reporters on a tour of the plant. “It’s really important that this plant is able to produce more because we know we have this high demand now.”

The Kentucky factory -- which also assembles Ford’s Super Duty pickups -- is a money minter for Ford, churning out models that analysts estimate can generate profits that exceed $10,000 a vehicle. Those earnings are essential as the company plays catch-up to rivals including General Motors Co. and Tesla Inc. in developing battery-powered cars and autonomous vehicles.

Ford shares climbed as much as 1.7 percent and were up 0.9 percent to $10.62 as of 10:06 a.m. Monday in New York. The stock had fallen 16 percent this year through the close Friday, while GM gained 1.1 percent.

The incremental spending is on top of the $900 million investment that Ford announced for the factory in June. Upgrades to the Kentucky Truck Plant in Louisville include 400 new robots, improved data analytics and a parts-making 3D printer.

Lucrative Segment

Crosstown rival GM has dominated the large and luxurious SUV market with models including the Cadillac Escalade and GMC Yukon, giving the company a $2 billion pretax profit advantage over Ford, according to a 2016 analysis by Morgan Stanley.

Last year, Ford gave its big rigs complete makeovers for the first time since the George W. Bush administration to try to reclaim some of that lucrative market share. Early reviews have been positive and the Navigator nabbed the prize for North American Truck of the Year at the Detroit auto show last month.

While GM has defended its turf with $5,000 Escalade discounts, Ford says demand for the Navigator is surging -- even with a price tag that can top $100,000. The Expedition starts at $51,695, while the Navigator begins at $72,055.

Strained Supply

“We’re straining right now at Kentucky Truck on both Super Duty and Expedition and Navigators,” Mark LaNeve, Ford’s U.S. sales chief, said on a conference call with analysts and reporters Feb. 1.

Ford was seeing triple-digit sales gains in all regions of the U.S., with new Navigators lasting on dealer lots only about six days before being sold, LaNeve said.

Ford Pumping Out More Profitable Big SUVs to Fund Its Future

Chief Executive Officer Jim Hackett is trying to engineer a turnaround at Ford, which has warned profit will fall this year as it invests in self-driving and electric cars coming in the early 2020s. GM already sells the battery-powered Chevrolet Bolt and has said it will have a fleet of test robot taxis on the road next year.

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