Ford Grits Teeth, Cuts Truck Production

(MoneyWatch)  Ford Motor is widely reported to be cutting back on production of big SUVs, on top of cuts announced earlier.

As painful as it must be, it's more evidence that the Detroit 3 are sticking to their common-sense strategy of cutting production to match demand. The traditional alternative is to keep production going, and as the saying goes, "lose money on every unit, but make it up on volume." Ford needed to take action. According to the Automotive News Data Center, Ford had not cut production this year as much as rivals General Motors or Chrysler. Year-to-date through May 10, Ford's North American production was down only 5.5 percent, to 971,669. Chrysler production was down 19.4 percent, to 793,247. GM was down the most, 24.7 percent to 1,106,875, but almost one-third of the drop could be attributed to a supplier strike.

The upshot was a 109-day inventory of light trucks for Ford. That is, at the present sales rate, it would take that long to sell them. A 60-day supply is the industry benchmark.

Production cuts also take some pressure off the game of "chicken" among the Detroit Three. So far, none of them has resorted to a true fire-sale round of discounts in the form of big consumer incentives -- like zero-percent financing, or "Employee Prices for Everyone" from a few years ago. Chrysler's present "$2.99 gas" promotion hardly seems to count, since consumers have to give up bigger cash deals to get the discount gas. Chrysler also withheld the deal from its biggest gas-guzzlers, and the deal expires June 2.

The next thing to watch is if Chrysler renews the deal. You'll know panic has set in if it does -- or, worse, sweetens the deal by, for instance, giving consumers cheap gas on top of the big cash deals, or applying it to all models.