| Bill Ford is an optimistic man. He has predicted
2004 the year of the car for Ford. "We have introduced a range of
new cars next year, all of which will make money,” promises the
Ford chairman and CEO. Nargess Shahmanesh-Banks takes a closer look at
the carmaker’s recovery plan.
After years of focusing on sports-utility vehicles and pick-up trucks
Ford is investing heavily in the revival of its racing heritage so as
to win back customers, especially in its home market.
The latest model is the Shelby Cobra concept, a two-seater, V10 roadster
developed in collaboration with racing car star Carroll Shelby and revealed
back in January at the North American Motor Show. The Cobra is modern
in its design philosophy and symbolically an important car for the carmaker.
The new concept completes the trilogy that started with Ford’s latest
version of the legendary GT and the new Mustang.
The Shelby Cobra concept car (right) was developed in just five months by the Ford Advanced Product Creation team, with a healthy dose of input from Shelby |
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The GT which takes Ford back to its Le Mans heritage |
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These cars mark Ford’s conscious comeback to more niche performance
cars. Although margins on limited-production, high-performance cars are
relatively modest, the carmaker still expects some profit to be made from
them. Most importantly, though, it should help with building back a strong
brand image for Ford.
“We are a company founded on our racing and I think many of us believe
that our future is bound up with motor racing,” says Nick Scheele,
Ford’s president and Chief Operating Officer, while adding the proviso:
“We are not doing anything now that doesn’t have a business
case.”
It has been a tough year for the former giant. Toyota has now officially
pushed Ford aside to become he world’s second largest carmaker,
just behind General Motors. The Japanese carmaker claims it sold 6.78
million cars worldwide in 2003, against Ford’s 6.72 million. This
represents a severe embarrassment for the Blue Oval that has held the
number two spot for almost 70 years. Toyota, whose sales were up 10% last
year, now has about 11% of the world market for cars, with a target of
reaching 15% in the next 10 years. Its profits are rising sharply, to
about $7 billion (€5.5 billion) in the year to March 2003. Added
to this the high price of its shares means that at $120 billion (€95
billion) Toyota is worth four times the valuation of Ford. This obviously
represents some serious competition.
Ford’s new product launch is just part of a jigsaw puzzle that will
see it fighting against recent financial downfalls. Only recently, US
December sales were reported to have fallen by 4%, marking a third consecutive
sale decline for the carmaker. On top of this, only 292,209 vehicles were
sold as opposed to 304,293 a year back. Although truck sales rose by 1.8%
in this period, Ford is now finding itself fighting for home territory
with the likes of Toyota and its new FTX pick-up. Now Honda has entered
the ring in this segment.
Despite this, Ford is being optimistic, if not more realistic, about the
future. In early January, the carmaker announced financial milestones
for 2004 that call for an increase in the company’s overall earnings
as new product launches and operational improvements drive growth in profitability.
“Over the past two years, Ford has consistently delivered on financial
commitments and exceeded earnings estimates and profit targets,”
says the company. “This progress has given us tremendous momentum
and is only the beginning. In 2004 we will continue to accelerate our
efforts, improving both automotive and overall corporate profits.”
To achieve profit growth in 2004, Ford is targeting total automotive pre-tax
profits in the range of $900 million (€715 million) to $1.1 billion
(€874 million) compared to an estimate of slightly better than breakeven
for 2003, in each case excluding special items. The improvement from 2003
primarily reflects significantly improved results at Ford Europe and the
Premier Automotive Group.
Achievement of these goals will move Ford closer to meeting its mid-decade
annual pre-tax profit goal of $7 billion (€5.5 billion), excluding
special items, which was announced in January 2002. Bill Ford and his
management team outlined the business outlook and financial milestones
for 2004 in a presentation in January to the investment community.
“Our 2004 milestones reflect our commitment to a solidly profitable
business,” said Don Leclair, chief financial officer. “By
building on the basics, we will continue to reduce our operating costs
and improve our quality, while launching great products that establish
Ford as an industry leader.
In Europe
For the first time since its creation four years ago, PAG reported profits
of around $100 million (€80 million) in 2003. This is an improvement
of $1 billion (€796 million) after a loss of $897 million (€714
million) in 2002. Incorporating Ford’s European brands Aston Martin,
Jaguar, Land Rover and Volvo, this is good news for the parent company
as it lost $1.2 billion (€955 million) in Europe in the first nine
months of last year. However, profits have not been high enough to cover
the $2.3 billion (€1.8 billion) target set for the middle of the
decade.
Mark Fields has been chairman and CEO of PAG since July 2002 having been
recruited from Mazda where he acted as president and CEO from 2000 to
2002. A Ford man since 1989, he understands the company well. “We
have the right management process in place to continue to drive improvement,” he says reassuringly.
Mark Fields says that the PAG brands represent 300 years of combined history and are therefore crucial for Ford |
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Back in January 2003, addressing the Automotive News World Congress, Fields
said: “These [PAG] brands represent 300 years of combined history,
two very different national cultures, four distinct corporate cultures
and a total of 142 national markets around the world. Ford did not buy
these companies for their sentimental value. Despite intense and growing
competition, we intend to make significant money at this business – and we know we can do it.”
Part of the problems Ford faces with its European operations is that it
has based its projections on an industry volume that was very different
from the reality of things, especially in the case of the last two years.
According to Bill Ford, the company’s projections for the next five
years will be based on more modest volume assumptions for the industry.
He also admits to not having considered the high marketing costs in Europe
over the planned period either.
Ford is still banking on PAG accounting for 30% of overall company profits,
although realistically he is predicting this will be reached by 2005 or
even 2006. Jaguar has been blamed for PAG’s financial downfall last
year as well as a weakening dollar against both the euro and sterling.
One turnaround strategy has been systematic and specific product launches
by each PAG brand. What Ford has referred to as “flagship”
products such as the Volvo XC90 and the Jaguar XJ. Second, and perhaps
more crucial, is the push towards platform commonality, something that
Ford’s boss says will not limit itself to just PAG, but involve
Ford International and Mazda. This will crucially include powertrain commonality.
Fields says his aim is to integrate more components with the luxury vehicles
while maintaining the distinctiveness of the each brand.
However, Ford is quick to denounce badge-engineering but adds that although
a wheel, for example, can distinguish a brand, there is no point reinventing
the parts that do not affect the customer’s experience in any way.
“Where you really want to focus resources – both cost and
creative power – is on those elements that do define brand values
and enhance product character.”
Fields sees a wide scope for synergy in logistics, for example. In the
US the brands have commonised import logistics to achieve projected cost
savings of 6% this year alone. The same applies in other areas and aspects
of distribution.
Thirdly, on the road to improvement has been the relocation of more costly
plant locations to less costly ones such as Valencia in Spain and Kocaeli
in Turkey for the Transit. Ford has been quoted as even saying: “We
will be much more opportunistic as we go forward.”
Fields admits that heritage is critically important and a key to an all-important
competitive edge, which he refers to as “distinctiveness”,
something for which a growing number of customers are prepared to pay
a premium. “The premium space is a great place to be right now,”
he said exactly a year ago, “but I’m not about to forget that
today’s '’on-premium’ brands represent a very potent
threat.”
Fields thinks the PAG set-up makes extremely good sense. However, he admits
that the aim is not to tame the brands, but to teach them to hunt together
as a pack – a pack backed by the global might of Ford.
“PAG’s role is to create a space in which our brands can work
with each other. Or put it another way, we have to find the ‘fit’
between the different cultures.”
Fields has learnt a great deal from Japanese quality control. “We
are going to drive the PAG brands to match or exceed Japan’s best.
That is our most important job at PAG.”
In the rest of the world
Mazda has high hopes of its European operations where it plans to reach
the 300,000 mark by 2006 at the latest. Sales for 2003 were up 30.4% at
206,568 units against 158,445 for 2002 giving Mazda a 1.5% market share.
The carmaker’s market share was only 1.1% in 2002. This has helped
put Mazda in a solid third place behind national competitors Toyota and
Nissan, even slightly edging ahead of Honda. The 2003 performance puts
Mazda on track for a 2% market share “in the medium term”
according to Dan Morris, president and chief executive officer of Mazda
Europe.
The story is slightly different for Mazda’s position in new territory
China, though, where it is the only Japanese carmaker without its own
manufacturing base, which some analysts predict puts it in a compromising
position. This is one of the fastest growing markets, and it is perhaps
important for Mazda to build up its brand identity. In fact, how the carmaker
performs in China is bound to have an impact on the new Mazda under its
first Japanese CEO, Hisakazu Imaki, a key figure in the industry.
Mazda had originally decided to start production in 2005, which meant
taking approximately 5% of a market that is estimated to reach 3 million
by 2007. However, Ford in the meantime begun making Fiestas last year
in a joint venture with China’s Chongqing Changan Automobile Corporation
at its first passenger car plant in the centre of the country. So it makes
sense for Mazda to make cars at the Chongqing Ford plant to save money
with platform and supplier sharing.
The problem, though, is that Mazda already has a relationship with the
local FAW Group that runs the 100 Mazda dealerships in China. A wise plan
would perhaps be to build a plant with FAW that would set up premises
on the coastal area that benefit for better access for trade. After all,
Mazda aims to boost production to 100,000 cars in 2004. Decisions have
not yet been made, but Mazda is lagging behind rivals Toyota and Honda
who are already well established in China, a market that cannot be ignored.
For Mazda, though, the US is still a key market. Back in January, it revealed
the MX-Micro Sport concept at the Detroit Show. The nimble and light five-door
concept made its world premier alongside seven additional all-new or facelifted
production models including the new Mazda3 four-door and Mazda3 five-door,
the new Mazda6 Sportwagon and Mazda6 five-door, the new turbocharged Mazdaspeed
MX-5 and the recently face-lifted MPV and an updated 2005 model-year Tribute.
“This has to be our best collection of cars ever,” said Stephen
Odell, Mazda’s senior managing executive officer in charge of global
marketing, sales and customer service. “We have committed ourselves
to getting our business stronger in North America. From MPV to RX-8, we
have got the right products – these cars represent the strongest
showroom in Mazda’s history – and we are now aggressively
addressing our distribution issues in this key market.”
Mazda is increasingly becoming a larger presence within the Ford Group
that currently owns 33% of the company, as parent company will use its
platforms for 10 models, as well as Mazda’s production system in
its plants.
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