Ford Looks Beyond Pickups and SUVs Company to Announce Major Strategic Shift Toward Small Vehicles
Posted on: Wednesday, 23 July 2008, 06:00 CDT
By Bill Vlasic
Ford Motor, which devoted itself for nearly 20 years to putting millions of Americans into big pickup trucks and sport utility vehicles, is about to alter its focus drastically and build more small cars.
The struggling automaker, reacting to what it sees as a rapid and permanent shift in consumer tastes brought on by high gasoline prices, plans to unveil its new direction Thursday, when it will report quarterly earnings.
Among the changes, Ford is expected to announce that it will convert three of its North American assembly plants from trucks to cars, according to people familiar with the plans.
And as part of the huge bet it is placing on the direction of the troubled U.S. auto industry, Ford will realign factories to manufacture more fuel-efficient engines and produce six of its next European car models for the U.S. market.
The company will also end speculation about its Mercury division by making the brand an integral part of its new small-car strategy, according to these people, who spoke on the condition that they not be quoted by name because of the timing of the official announcement on Thursday.
The sweeping changes are the result of months of strategic discussions by Ford executives, and represent a far-reaching response to the woes afflicting Detroit automakers.
U.S. vehicle sales have slumped 10 percent so far this year, with Ford down 14 percent, and the industry is headed for its worst annual sales in more than a decade.
Moreover, $4-a-gallon gasoline (about $1 per liter) and a weak economy in the United States have battered the market for big SUVs and pickups, and sent automakers scrambling to revamp their product lineups.
No company has more at stake than Ford, which popularized the SUV in the 1990s with its truck-based Explorer and led the boom in pickups with its best-selling F-series model.
After losing $15.3 billion in 2006 and 2007 combined, Ford had hoped to stabilize its operations this year and return to profitability in 2009.
But rising fuel prices and the collapsing truck market forced the company, the second-biggest U.S. automaker, to abandon its profit target in May and accelerate its shift to smaller vehicles.
Since then, Ford's chief executive, Alan Mulally, has directed an unprecedented overhaul of the company's future products.
Mulally, who joined the company from the aircraft maker Boeing in 2006, is committed to reducing Ford's dependence on large vehicles, according to people familiar with his plans. "We don't have a sustainable company if we don't do this," Mulally recently told members of his management team.
For at least a decade, about 60 percent of Ford's U.S. sales came from trucks and SUV's, compared with 40 percent from cars and car- based crossover vehicles. Eight of the company's 14 plants in North America build trucks, SUV's and full-sized vans.
Those numbers are shifting rapidly as consumers turn away from large vehicles, and the chief goal internally is to make cars and crossovers the bulk of its product lineup to better align the company with market demand.
A Ford spokesman, Mark Truby, declined to comment Monday on the details of the company's plans.
"Trucks and SUV's have been so central to their strategy for so long, but the bottom line is that consumers have moved on," said David Cole, chairman of the Center for Automotive Research in Ann Arbor, Michigan.
The sharp drop in vehicle sales this spring and summer has raised fresh concerns about the viability of U.S. automakers.
General Motors, with its stock hovering around $13 a share and speculation growing about a possible bankruptcy filing, last week announced broad plans to cut costs and increase its cash reserves by $15 billion.
Ford has already slashed more than 40,000 jobs in the past three years, and sold three of its European luxury brands to raise money.
But the company is about to address its long-term, and increasingly precarious, reliance on big vehicles by transferring billions of dollars in product development and manufacturing costs into car programs.
Ford is expected to convert three of its big assembly plants from truck-based products to cars, including its so-called Michigan Truck plant in Wayne, Michigan, which builds Ford Expedition and Lincoln Navigator SUV's.
The company plans to use the plant to increase its output of the Ford Focus, a compact car that has become one of its best sellers this year. Ford also plans to retool two of its V-8 engine plants to add production of more fuel-efficient four-cylinder and V-6 engines.
A large part of its future car lineup will be based on vehicles currently under development for the European market. By 2010, Ford plans to begin assembling six of its upcoming European car models in North America, starting with the Ford Fiesta subcompact.
And while Ford has shed upscale brands like Land Rover and Jaguar, the company will keep the Mercury brand and use it as another distribution channel for small cars.
In the mid-1990s, Ford introduced its full-size, seven-passenger Expedition and Navigator SUVs, which were built on a truck chassis.
The big vehicles got less than 15 miles per gallon of gasoline, or about 16 kilometers per liter. But consumers hardly cared when gasoline was inexpensive. Other manufacturers followed suit, and the big SUV became fashionable.
Ford and other automakers earned up to $15,000 profit on each full-size sport utility vehicle. At the company's Michigan Truck plant, employees worked weekends to keep up with demand. "It's hard to blame Ford for building vehicles that consumers wanted to buy," said Wolkonowicz.
Low-cost gasoline also propelled the astronomic growth of the pickup-truck market. In 2004, Ford sold a record 939,000 full-size pickups, and nearly two-thirds of its overall sales in the United States were trucks, vans and SUV's.
At the same time it invested in the growing truck market, Ford cut back spending on its cars. Its Taurus sedan, once the market leader, fell to a distant third behind the Toyota Camry and Honda Accord.
While it concentrated on trucks, Ford fell out of step with larger market trends. In 2004, only 28 percent of its U.S. sales were cars, compared to 43 percent for the overall market.
When Mulally was recruited as Ford's chief executive in September 2006, he began questioning the company's dependence on pickups and SUV's. Ford managers said Mulally repeatedly referred to charts that showed large vehicles constituted only 15 percent of the global automotive market. Small cars, by comparison, made up 60 percent.
At Mulally's urging, Ford embarked on a longer-term strategy to globalize its car platforms and expand its car lineup in the U.S. market.
But the task took on greater urgency this spring, when rising gasoline prices drove consumers away from trucks in droves.
Originally published by The New York Times Media Group.
(c) 2008 International Herald Tribune. Provided by ProQuest Information and Learning. All rights Reserved.
Source: International Herald Tribune
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