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Old 09-09-2003, 09:26   #1 (permalink)
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E.U.:Ford counts on luxury to bolster its profits

2003 FRANKFORT AUTO SHOW: Group chief focuses on sales, not costs

BY MADELINE CHAMBERS
REUTERS

FRANKFURT -- The head of Ford Motor Co.'sluxury unit Monday said new higher-volume models rather than cost cuts would boost profits in the second half, and he was more optimistic about a stabilization in European car demand.

The chief of the Premier Automotive Group, due to contribute more than a third of profit to the world's second-biggest automaker by mid-decade, said his focus would be on bolstering revenue while continuing to watch costs.

"We have focused a lot on what we are doing from a synergies standpoint and operational efficiencies and those things are very important, but we are also highlighting that we've got to get top-line growth," PAG's Mark Fields said in an interview before the Frankfurt auto show.

The unit, which includes Jaguar, Land Rover, Aston Martin and Volvo, posted a pretax profit of $166 million in the second quarter compared with a pretax loss of $122 million a year earlier.

Fields said PAG was on track with its target of posting a profit this year following a loss of more than $900 million last year. The unit has cut costs in recent years in part through cooperation among brands, such as part sharing.

"In the first half, over 50 percent of the improvement was due to operating efficiencies -- manufacturing and material costs, for example -- and as we look to the second half, I want the revenues piece to contribute more than in the first half," Fields said.

He declined to say how much he would like revenue to grow, saying only it should be "reasonable and sustainable."

In the second quarter, revenue rose to $6.4 billion, up from $5.5 billion a year ago, but Fields noted that the third quarter tends to be weaker than the second quarter.

In the last 18 months, Fields said, PAG launched its flagship models and it was now getting serious about new volume products which will be on show at the auto exhibition.

He identified the flagship models as Volvo's XC90 sport-utility vehicle, Jaguar's XJ sedan, Aston Martin's Vanquish and Land Rover's Range Rover.

Fields said Volvo's S40 new compact car is extremely important. Built on a platform to be shared with the new Focus, it also shares some parts with other Ford cars.

Fields declined to give a sales target for the S40 but noted the plant where the model is made has capacity to build 150,000 units a year. He said he hoped to work toward that after the launch phase at the end of this year and the start of 2004.

PAG also hopes Jaguar, which had deep losses last year, will tap booming demand for diesel engines and estate cars with its X-type estate and X-type diesel.

"We are going to hunt where there are fish," Fields said.

A fresh Land Rover Freelander and the Aston Martin DB9, successor to the DB7, will also be exhibited at the show.

Fields reiterated that he does not intend to sell any of PAG's brands despite sporadic media reports to the contrary. "I did not come here to oversee an auction," he said.

Fields said he was now "cautiously optimistic" about developments in European auto demand, whereas two months ago he was merely cautious. Auto sales are due to fall 2-3 percent this year, most industry experts say.

He envisages a stabilization in Europe in the second half and a stronger first quarter for 2004 than in 2003. Fields said he is encouraged by signs of a pickup in capital expenditure by corporations that had been in the doldrums.

But said pricing pressure in Europe is still a worry. Many companies are offering discounts on cars and some experts think even new models will be priced more modestly than they would have been two or three years ago due to falling demand, overcapacity and a growing threat from Asian rivals.

"If you are not worried about pricing pressure, then you are not worrying about the right thing," he said.

Fields noted that, with a wide array of new models being launched, competition is intensifying, even in the luxury segment.

"We all have the flu but at the premium end our temperature isn't so high," he said.

He acknowledged that PAG, which still lags rivals including Germany's Mercedes and BMW, would not be able to lead the pricing trends in Europe due to its size.
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