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THE BIZNOB – Global Business & Financial News – A Business Journal – Focus On Business Leaders, Technology – Enterpeneurship – Finance – Economy – Politics & LifestyleTHE BIZNOB – Global Business & Financial News – A Business Journal – Focus On Business Leaders, Technology – Enterpeneurship – Finance – Economy – Politics & Lifestyle

Finance

Finance

Fire of a magnesium-parts plant suspends Ford’s F-Series

When the Meridian Magnesium Products of America’s main factory in Michigan was set ablaze by afire two weeks ago, so were the jobs and future sales of Ford and its employees.

Magnesium parts have a high demand due to their light and sturdy attributes, which allow car manufacturers to increase fuel efficiency while keeping costs low. However, supply is low, for magnesium-part manufacturers are far and few; consequently, a natural disaster like the fire on May 2ndled to a quagmire for automobile manufacturers. Because of this, Ford will have to lay off 7,600 workers and suspend production of the F-Series truck, its best seller.

While Ford predicts that it has enough trucks in inventory for the next 84 days and that adjusted EPS will rise $0.15 to $1.70 this year, it is tough to tell if these numbers are accurate, especially if consumers run to their local dealership to get an F-150 before they run out. The F-series franchise has been the best-selling pickup for 41 years– last year, it accounted for $41 billion in revenue, which is 28% of total sales. Thus, if the production is hindered, this could affect shareholders’ valuation of Ford.

And while their share price has actually risen slightly since the fire on May 2nd, their stock is on track to be at its lowest level in over five years. Their stock price has already decreased by two dollars since January, and this setback will only decrease that figure. Further, Q2 is halfway over, and it’s hard to imagine Ford’s EPS beating expectations like they did in Q1.

But Ford isn’t the only company that will be affected by the fire – Fiat Chrysler will lose some production, Jeep Wrangler will have to cut some workers’ hours, and GM will have to suspend production of certain vans.

And while this creates a short-term obstacle for sales in the automobile industry, what does this mean for Meridian and the magnesium-manufacturing industry? As mentioned earlier, automobile manufacturers have only recently started using magnesium for its light aspects that help reduce fuel costs. Clearly, there is a significant shortage of magnesium manufacturers; otherwise, Ford and these other automobile manufacturers would be able to continue production with no issues. Even globally, magnesium is only used occasionally on luxury cars like the Porsche 911. This fire may serve as a wakeup call for potential new entrants – there is a high demand, low supply, and few barriers to entry, which means it is an incredibly profitable market. Within the next few years, we will likely see many new factories that rival Meridian.

However, Meridian has more than just competition to worry about. According to USA Today, the fire was Meridian’s seventh safety violation since 2014. If this trend continues, Ford and other domestic car manufacturers will likely take their business elsewhere. With the threat of new entrants and its inward issues, Meridian has some adjustments to make.

Only time will tell if Ford can bounce back from its lackluster 2018 performance and the added burden of this factory collapse – without its top-selling vehicle, it’s hard to imagine EPS beating expectations. In terms of the magnesium-manufacturing industry, Meridian’s loss is competitors’ gain. The door is as open as ever for magnesium producers – both domestic and global. The automobile industry changes daily, as manufacturers look for ways to curb costs while still following government regulations. The expansion of the magnesium industry could be the next saving grace for automobile moguls like Ford, GM, Jeep Wrangler, and Fiat Chrysler.

Featured image via Pixabay/cjson360


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