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Old 03-06-2003, 07:43   #1 (permalink)
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Ford of Europe freshens lineup

But market share hasn't rebounded completely
March 6, 2003
BY JAMIE BUTTERS
DETROIT FREE PRESS BUSINESS WRITER

GENEVA, Switzerland -- At the Geneva auto show three years ago, Ford of Europe's then-President David Thursfield displayed a range of models that averaged almost six years on the market -- nearly an eternity in the high-volume car business.

It was, he recalled this week, "the low point of my career."

That was in the early days of Ford Motor Co.'s European turnaround strategy -- the model for the current North American restructuring. The plan was to close plants, instill flexibility in remaining plants and assault the market with 45 new vehicles in five years.

Now the product lineup is less than half as old, and the company has a system to ensure that it never falls behind the market like that again.

Costs are coming down, and market share is going up. Still, challenges remain. Ford of Europe has not rebounded to its historic market share, and last year's profits were nearly wiped out by losses at the European-based luxury group. "What they did in essence is to stem the decline and start a slow recovery. You can't say they've turned the corner," said Garel Rhys, a professor of automotive economics at the University of Wales' Cardiff Business School.

Thursfield, now an executive vice president at the Dearborn automaker, disagrees. "Look at the array and strength of Ford Motor Co. today compared with three years ago. It's a remarkable transformation."

And the lineup is growing. The Focus C-Max, a crossover vehicle that is a taller take on the five-door Focus, was unveiled Tuesday at the Geneva auto show. It will go on sale this fall to compete with the Opel Zafira and redesigned Renault Scenic.

Ford of Europe will also start selling a more-loaded version of its tall but tiny Fusion, called the Fusion+, stylish variants of its two-seat Ka, diesel editions of the Mondeo sedan and Galaxy minivan. And Ford announced Tuesday that it will sell up to 80 Ford GTs, the reincarnated Le Mans champion, which will be priced at less than $150,000.

"We're now entering niches and . . . I feel very good about that. Also look at the performance on capacity alignment, on cost reduction, on distribution realignment," said Nick Scheele, Ford's chief operating officer and the architect of its European strategy.

Ford of Europe is entering its fourth straight year of improved customer satisfaction, of net cost reduction, of revenue gains and growing market share, said current division president Martin Leach. It is using 95 percent of its production capacity, versus 70 percent in 2000, and has the flexibility to respond "pretty much instantaneously" to changes in customer demand, Leach said.

The Ford brand is delivering on its promised 45 new or significantly redesigned vehicles in five years. By this fall, Leach said, he should be able to describe the next product offensive.

"We're on track," he said.

Not that shareholders would be able to tell. Ford reports European profits but combines the results of Ford of Europe with the European operations of Ford's luxury Premier Automotive Group (PAG), which lost money last year. As a result, Ford's reported net income from Europe fell 95 percent, from $266 million in 2001 to $12 million last year.

And although Ford has gained market share the last three years, progress is slow. At the beginning of the '90s, Ford sold about 12 percent of the cars in Western Europe. But its share tumbled to about 8 percent before creeping up to 8.7 percent in 2002.

Part of the problem is that while Ford's cars have gotten much better, they still trail Europe's best, said Fritz Preiss, a partner in Accenture's global automotive consulting group. "This is halfway through to what they need to compete against the French guys and Volkswagen," he said.

Another problem for Ford in Europe, much like in the United States, is that competitors have become much better, said Rhys, the Welsh professor. So if customers switch from a solid Ford, they are likely to find the rival car is good, too, and that makes it difficult to win them back.

Luxury challenges
While Ford of Europe, which is based in Cologne, Germany, wrestles with the likes of a rejuvenated PSA and a still-strong Volkswagen AG, Ford's London-based luxury group faces bigger problems, mostly stemming from inflated expectations.

That overall competition, which ultimately lowers prices and profit margins, hurts luxury brands, too, Rhys said. If customers are willing to pay 50 percent more for a luxury car than a regular car, then what they would pay for luxury falls as the prices of regular cars fall.

Jaguar, in particular, is challenged as it tries to grow rapidly when supply already exceeds demand and against such entrenched luxury marques. "Jaguar was not the icon that BMW and Mercedes were. What it really was in a way was a big Porsche," said Rhys. Rivals big and small are offering sweet lease deals and other discounts, Ford executives say, which have hurt the entry-luxury X-type sedan. U.S. sales plunged 44 percent last month, compared with blistering sales a year earlier.

And quality problems with the aluminum body of the Jaguar XJ -- the brand's flagship -- delayed its launch last year and led to a $500-million loss for the brand.

Despite last year's losses, there is no plan for plant closings and a sweeping restructuring of PAG, said the group's chairman, Mark Fields.

The European luxury brands will start generating profits as they launch new and innovative vehicles and find smart ways to share components. A new six-speed transmission would have been far too expensive for any one of the brands to develop, but together they can do it, saving money and improving the vehicles. "In the end, it's not about cutting the cost. It's about driving value to the customer," he said.

Many new models will be coming, as will become evident at the Frankfurt auto show this fall, Fields said.

But at Geneva, the only PAG debut was a Volvo station wagon concept that features such luxuries as a cargo-area floor with power sliders for easy loading. Under that are warm and cold storage spaces for food.

Building a profitable PAG would take time, just like fixing Ford of Europe did.

"We had huge problems in Europe, and I think it's a tribute to this team that they've overcome them," Scheele said.
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