Over the last 52 weeks, shares of automaker Ford (F 11.72) have declined 2.3% while the S&P 500 has increased 17.1%. That stark underperformance has a lot to do with Ford's disappointing sales performance and a weakening sales pace for industry sales overall despite increased incentive spending.
Ford's stock, however, has been the real outcast, particularly against its main competitor General Motors (GM 38.70), which is up 22.3% over the last 52 weeks.
After Tuesday's close, it was reported that Ford is going to temporarily idle production at five plants in North America -- three in the U.S. and two in Mexico -- in a bid to help cull rising inventories for slower-selling models.
Reuters reported that the impacted production lines include the Ford Fusion and Lincoln MKZ midsize sedans, the Ford Focus compact car, the Lincoln Continental and Ford Mustang, Ford Fiesta, and the Ford Transit van.
Notably, Ford's SUVs and trucks are not part of the shutdown plan, which will last anywhere from one to three weeks at the affected plants. That's because demand for SUVs and trucks remains high thanks in many respects to the persistence of low gas prices.
The decision to idle the aforementioned production lines is a prudent one, because if production continues to outpace consumer demand, profitability will continue to be compromised.
This move is aimed at protecting Ford's bottom line and limiting the excess promotional activity that occurs when inventory levels are bloated. Granted the move was made from a position of weakness, yet it is grounded in a view that profitability matters, which is a positive approach for Ford shareholders.