Ford Pulling Itself Up By Its Bootstraps

Unemployment, fluctuating gas prices and a still shaky economy all make it difficult to predict how the next chapter in the U.S. automotive industry will unfold, says Ford Motor Co.'s North American chief. I think volatility is maybe the new norm in the industry, Mark Fields, president-The Americas, tells Ward's in an exclusive interview. The industry next year is likely to fluctuate maybe not month

Unemployment, fluctuating gas prices and a still shaky economy all make it difficult to predict how the next chapter in the U.S. automotive industry will unfold, says Ford Motor Co.'s North American chief.

“I think volatility is maybe the new norm in the industry,” Mark Fields, president-The Americas, tells Ward's in an exclusive interview.

The industry next year is likely to fluctuate “maybe not month to month, but quarter to quarter,” he adds, noting the crawl back to conventional vehicle sales won't be a smooth journey. “It will come in “fits and starts,” and depend largely on the economy and consumer confidence.

Fields hesitates to predict light-vehicle volumes for 2010 but says Ford expects a “modest improvement” to about 12.2 million-12.3 million units in the U.S., outpacing this year's projected 10.2 million and exceeding forecasts made by other auto makers.

Fields cannot afford to be overly optimistic, even though Ford recently posted a third-quarter pre-tax profit of $357 million in the key North American market, its first quarterly black ink since early 2005.

Fields says the ability to look beyond the negativity stems from the “One Ford” plan initiated by CEO Alan Mulally. At its crux is a disciplined approach to all aspects of the business, the guidelines of which have become a mantra to Ford employees.

“As you can see from our products, our strategy is best-in-class fuel economy, world-class quality, smart technologies and safety,” he says.

The strategy is starting to pay off. Even in a down market, Ford has gradually increased its U.S. retail market share 12 out of the last 13 months. The auto maker's retail share as of October was slightly more than 15%.

In the past, large trucks and SUVs delivered much of Ford's profits. But those days are gone as consumers have pushed fuel economy near the top of their purchase-consideration list.

In keeping with Mulally's edict of providing car buyers with vehicles they “want and value,” Ford has decided to bring some of its award-winning European products to the U.S., a move enthusiasts long have demanded but, until now, management has resisted.

“We've fundamentally changed the economics of small cars,” Fields says. “First off, we used to be a very regionally operated company. Now through our One Ford strategy, we're using global platforms that give us huge economies of scale on piece cost,” as well as efficiency gains in manufacturing.

According to George Pipas, Ford's top U.S. sales analyst, small cars in 2003 accounted only for 21% of U.S. industry sales compared with the 39% of the market controlled by larger vehicles.

Fast forward to 2008, and small cars accounted for 31% of sales. That number is expected to reach 36% in 2013, when they are expected to outsell big cars.

Fuel economy is not only important to small-car buyers but also purchasers of large SUVs, cross-utility vehicles and pickups. As such, Ford plans to increase fuel economy across its lineup every year, Fields says, noting there always will be a market for trucks.

Many consumers made the switch during last summer's government-backed “Cash for Clunkers” scheme, during which several Ford models were among the most traded-in vehicles, in exchange for new Fords.

Fields says there was some pull-ahead due to the $3 billion incentive program, but not as much as critics claimed. He also insists those who argue the initiative was too costly aren't seeing the big picture.

“The government knew when it did the Clunker program it was going to cost some money. It was all about stimulating the economy. So (the cost) shouldn't surprise anybody.”

While Fields calls the program largely successful, he says there is no need to launch another initiative to spur sales. “I think our preference is to let the market do its thing.”

Ford's dealer network continues to back Mulally and his management team and is positioned to take advantage of severe dealership cuts made by GM and Chrysler, especially in rural areas where domestic brands historically have thrived.

Fields is careful not to criticize moves made by domestic competitors, instead stressing Ford brass is concentrating on ensuring the continued success of its own dealer network and not worrying about others.

Over the past several years, the auto maker has worked its own plan to trim its dealer network with the objective of ensuring Blue Oval dealers aren't competing against one another.

“We're working very collaboratively with our dealers and saying, ‘This is what we see as the market potential going forward. This is what we see our share at, and this is what we see this market can potentially support,’” Fields says.

“What's important for us is dealer profitability and making sure they have the throughput they need to earn a good return on their investment.”

Despite appealing to a dealer's business sense and laying out data to indicate why closing down may be the best option, Fields says it often is a very emotional decision for dealers, many of which have operated as family businesses for generations.

In 2005, Ford had some 4,400 U.S. dealers. Today, that number is below 4,000. Fields says there is no set number for dealer reduction, as it's a “bit of a moving target.

“It depends on the industry and how that evolves, and part of it depends on our market share performance,” he says. “We're looking at it market by market.”

TAGS: Dealers Retail
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