In Europe, the New Fords are Turning Heads

Spirits may be sinking in Dearborn, Mich., but the mood is cautiously upbeat these days at Ford's European headquarters in Cologne. That's no small turnabout: For six years, as Ford Motor Co. (F ) steamrolled through the U.S., its European arm steadily lost market share. Now, things are changing, thanks to a solid newcomer in Ford's lineup: the $20,000 Mondeo sedan, introduced late last year.

European drivers have flocked to buy the Mondeo. Meanwhile, good buzz has helped boost sales of Ford's overlooked Focus, a $15,000 compact launched in 1998. The influential Auto Motor und Sport named the Mondeo best in class, ahead of Volkswagen's popular Passat, while adding that the Focus handles better than General Motors Corp.'s Opel Astra. Says Nick Scheele, Ford of Europe's 57-year-old chairman: "In Europe, you have to have inspirational vehicles that people are proud to own and lust to drive."

A CORNER TURNED? As a result, the market share of Ford in Europe--not including its luxury brands Volvo, Jaguar, Aston Martin, and Land Rover--grew to 9.1% in the first four months of 2001, up from 8.6% in the same period in 2000. Sales of the popular cars have also helped stanch the flow of red ink in Europe. After losing $1.1 billion in 2000, Ford's European operations managed a first-quarter profit of $88 million, on sales of $8.7 billion.

Since becoming chairman in January, 2000, Scheele's major focus has been a $1 billion restructuring of Ford of Europe. The early results are a big reason that many in Detroit consider him a candidate to fill the vacant job of running Ford's worldwide auto operations. Still, Scheele--who is not commenting on the reports--hesitates to declare Ford's European turnaround a complete success just yet. For one thing, competition is heating up as Europe's overall car market shrinks. Sales are down 3% so far this year. Moreover, significant benefits from the restructuring will not show up until 2002. Consolidation of engine production at Ford's plant in Dagenham, England, and cutting assembly-line capacity on the Continent are still in the future. Meanwhile, Ford is investing $400 million to modernize its huge assembly plant in Cologne and develop fuel-efficient diesel engines with PSA Peugeot Citroen.

But analysts say developing cars that consumers want will still be the biggest reason for any reversal of Ford's fortunes in Europe. In 1994, Ford held 12.1% of the market. That share dropped in each of the next six years as executives in Detroit badly misread market trends. Ford, for instance, failed to produce a compact minivan. That is now the hottest segment in Europe. And Ford's contender in subcompacts, the $12,100 Fiesta, is now 12 years old, nearly twice the age of rivals.

Scheele, a 35-year Ford veteran, made his mark in Europe by turning around the moribund Jaguar line. He was also behind the introduction of Jaguar's popular S-type. So with that strong background in new products, one of his first moves was to speed up the launch of a new Fiesta by six months; it is now expected to debut in November.

Scheele hopes that, like the Mondeo, the Fiesta will help Ford of Europe end a reputation for dull cars and lackluster engines. For its beleaguered parent, a turnaround won't come a moment too soon.

By Christine Tierney in Frankfurt, with Katharine A. Schmidt in Stuttgart

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