Backfiring At Fordby
With sales of the new Ford Taurus stalling, California dealers demanded a price cut in a December meeting with Ford Div. General Manager Ross H. Roberts. Roberts refused. Rebates, he said, would undermine the upscale image Ford is aiming for with Taurus' sophisticated new design. The dealers were not convinced. "We're losing customers," grouses Jim Landes, a Santa Clara Ford dealer. "They can't, or won't, admit they've overpriced it."
Unhappy dealers are a symptom of a much deeper malaise at Ford Motor Co. Consumers have been put off by higher prices, Wall Street is griping about its sagging profits, stockholders are nervous, and even Ford's board of directors is said to be growing restive about the auto maker's flagging performance. "Ford has some very serious problems," says David Bradley, an auto analyst at J.P. Morgan & Co. "They're in a downward spiral, and it's hard to say when they'll pull out of it." Adds one large institutional shareholder: "I don't think anyone is happy with how Ford is stinking up the joint."
Against this acrimonious backdrop, Ford is overhauling 40% of its U.S. product lineup and 35% of its European offerings. First, there was Taurus, which suffered a 22% sales decline vs. last year in its first two months on the market and is not meeting internal sales goals. A redesigned F-150 pickup is coming in January, and a restyled Escort is set to debut in May. In Europe, a new Fiesta was launched in November, and scheduled for next year is a new Ka minicar designed for urban driving. Ford has spent nearly $9 billion developing the three vehicles for the American market, and nine of the auto maker's 20 North American plants depend on their success. "These vehicles are monumental in importance to the company," Ford's Roberts says.
LOCKED IN. The distressing early returns on Taurus highlight a larger problem. Cautious consumers are turning a cold shoulder on Chairman Alexander J. Trotman's bold strategy to emulate Toyota's engineering excellence by loading Ford's vehicles with snazzy features and stiff prices. For now, Ford is holding fast to its Taurus sticker, which starts at $19,150 and quickly jumps above $20,000. It just gave the new F-150 a base of $15,045--nearly $1,150 above the '95 price. But Ford's tough line comes in a deal-driven market in which even Toyota is scaling back and cutting prices. "Ford is zigging while the market is zagging," says John Casesa, an auto analyst at Wertheim Schroder & Co. "They are locked into a strategy that is not appropriate for this price-sensitive market."
Indeed, Trotman could be forced to adjust his grand vision of topping General Motors Corp. in sales and besting Toyota Motor Corp. in products. Suppliers, Ford insiders, and shareholders now say that Ford's board of directors and the Ford family are pushing Trotman to boost profitability and build momentum in new-product launches.
Trotman denies he's under pressure. "I'm getting along excellently with the board," he says. Trotman attributes criticism of his plan to Wall Street's fixation with short-term results. "We're not managing Ford Motor Co. quarter by quarter," he says. "We have a long-term strategy." Some outsiders think he's right to target younger, affluent customers who now buy Japanese autos. "You don't commit to a multibillion-dollar strategy to reposition yourselves and then give it up because you have a few rough quarters," says Arthur D. Little Inc. analyst Bernard Campbell. "You have to be patient."
Of course, Wall Street is anything but patient. Ford shares have fallen from almost $32 in mid-October to about $29 now. The driver: Ford's 68% decline in third-quarter profits, to $357 million, on revenues of $31.4 billion, a scant 1.1% profit margin. On Dec. 13, Trotman warned that fourth-quarter earnings would come in below last year's number (chart). Analysts figure the company will lose nearly $100 million on its auto operations. Some worry that Ford's core business will remain in the red for the first quarter of next year. The company concedes that product launches will keep its profits under pressure through the first half of 1996.
Shareholders are anxious for Ford to recover the $2.8 billion it poured into developing the new Taurus. Inside the company, Taurus' bloated price and content are symbols of Ford's excesses. At a suburban Detroit center where Ford engineers analyze vehicles by tearing them apart, cars overloaded with features are now referred to as being "Taurusized."
Meanwhile, Ford staffers developing other vehicles are doing their best to distance themselves from the Taurus. Bob Kiessel, program manager for the new Escort, reluctantly acknowledges that his team targeted their design to match the Toyota Corolla, similar to Team Taurus' rallying cry to "Beat Camry." But the Corolla sells for about $2,500 more than the current Escort. So Kiessel quickly adds: "We will remain in the same ballpark [as the previous Escort] on price. It's very important we not lose our traditional customer."
NEW ADS. Still, Ford execs vow that Taurus will hit its stride early next year as consumers warm to its radical styling and copious creature comforts. "It is such a revolutionary change that people have to get used to it," says Roberts, who adds the original Taurus took about a year to catch on after it was launched in 1986. But younger buyers were largely ignored by this fall's $110 million ad campaign for Taurus, which played to loyal older customers with a saccharine jingle about "making the dream come true." That slogan is being dropped in new ads coming early next year.
Some outsiders worry that really fixing Ford's problems may take four years. That's when Trotman's global reorganization, known as Ford 2000, will be complete. The sweeping plan aims to take an estimated 30% out of Ford's swollen product-development costs by designing cars on a global scale instead of regionally.
Meanwhile, Trotman may have to focus on other issues, like how to keep dealers happy. "They've thrown conservatism on pricing out the window," grumbles Martin J. McInerney, a Ford and Lincoln-Mercury dealer in Southfield, Mich. Long-term strategy or not, its dealers have a New Year's resolution: to force new pricing out of Ford.
SPIFFY-BUT IFFY-NEW PRODUCTS
-- FIESTA (EUROPE) With 1995 sales of 545,000, the new Fiesta, which came out on Nov. 16, accounts for more than a third of Ford's European sales. But profit prospects are slim since consumers in the weak Euro market won't consider buying without a price cut.
-- TAURUS/SABLE Ford sold 503,503 Taurus/Sables in the latest model year, making it the top-selling U.S. car. But sales of the redesigned model, launched on Sept. 27, dropped 16% in October and 27% in November. Consumers haven't adjusted to its radical new styling and near-$20,000 sticker.
-- ESCORT/TRACER Ford sold 359,138 units of this model last year. Will a redesigned version, scheduled for May, be able to overcome formidable competition from the new Honda Civic and GM's low-priced Chevy Cavalier and Pontiac Sunbird?
-- F-SERIES PICKUP With 698,000 sold in the last model year, this is the U.S.'s best-selling vehicle. The remake, due Jan. 25, has more creature comforts, a hinged third door, and a softer ride. But will buyers balk at the $15,045 price--$1,150 higher?