Where Are Ford's Hot Cars?

The company vows a product-led revival. It will take time to rev up

As Ford Motor Co.'s (F ) new chief executive, William C. Ford Jr., races to fix the troubled company, he's repeatedly promising "a product-led renaissance" to shareholders, employees, and dealers alike. Central to that revival, he says, is the company's mainstay Ford Div., the 99-year-old operation founded by his great-grandfather, Henry Ford, and known in-house as "the blue oval," after its signature nameplate. Ford says: "It's our identity. To succeed we must get the blue oval shining brightly again." Ford Div. accounts for 83% of the company's U.S. volume and, in years past, nearly all its profit.

You wouldn't know it to look at the division these days, however. The unit's once-lucrative sport-utility vehicles and pickup trucks face tougher competition than ever, and Ford Div. sales this year have fallen 10%, vs. a 3% decline industrywide. In May, a dozen Ford models--from the Focus subcompact to the giant Excursion SUV--posted sales declines. Even worse, except for the new Expedition SUV that rolled out in May and the addition of a diesel-equipped pickup this fall, Ford Div. has little in the pipeline for more than a year. The unit's market share has already slipped to 17.5% from 19% at the end of 2001. "What's to say they're not going to lose more?" asks DRI-WEFA analyst Rebecca Lindblad. "They're stale."

The problem is that during the 1990s, under former CEO Jacques Nasser, Ford Motor plowed much of its bountiful profits from SUVs and trucks--totaling $8.8 billion in 1999--into a heady expansion of e-commerce ventures, luxury car brands, and even junkyards. The company bought Volvo and Land Rover, expanded Jaguar, and rolled them all into the Premier Automotive Group. It gave PAG a big budget for new models, anticipating it would contribute one-third of global profits by mid-decade. (Analysts say it's still too early to tell if PAG will meet that goal.) Ford also poured resources into restoring the ailing Mazda Motor Corp. and Lincoln units.

But little attention was paid to the development of mass-market cars and trucks. And competitors took advantage of that. General Motors Corp.'s (GM ) Silverado and Sierra pickups, for instance, overtook Ford Div.'s top-selling F series last year. New pickups from Toyota (TM ) and Dodge also are crimping F-series sales and profits. Yet Ford Div. won't get a new pickup until the fall of 2003. Ford also has delayed overhauling its popular Ranger pickup, which will be over a decade old before it is replaced, say Ford sources. Concedes Kathleen Ligocki, vice-president of North American marketing: "We didn't spend enough money, especially on the Ford car side of the business." For now, all Ford can do is patch together rebates, cut-rate financing, and targeted price adjustments to move its aging lineup. Last year Ford Motor lost $5.5 billion. It expects only a tiny profit in 2002.

When the new models do start showing up (table), Ford will be embarking on a risky strategy of parsing the market into smaller pieces, instead of relying on mass-market cars. Ford's boldest gambit will be to replace its top-selling car, the Taurus, with a quartet of midsize sedans, car-based SUVs, and sport wagons. It's a pragmatic recognition that Taurus, America's best-selling car from 1992 to 1996, is now widely disparaged as a rental-company staple. Only the most highly regarded cars, Honda's Accord and Toyota's Camry, continue to grab huge volume. Stephen G. Lyons, Ford Div. president, won't say the Taurus is on its way out, but notes: "It's hard to sell 400,000 a year of anything. Now, we're dividing it into lots of 125,000."

Although this strategy originated under Nasser, it's now up to Bill Ford to make it work. Insiders say Ford Div. wants to position the upcoming Five Hundred sedan and CrossTrainer car-SUV as upscale Taurus alternatives. Both will be built in one of Ford's first flexible plants, in Chicago, on a Volvo platform. Both cars will be larger than the Taurus and, as premium models, would cost several thousand dollars more than the typical $20,000 family sedan. Ford is betting it can profitably build the new models at the Chicago plant, which will adopt flexible manufacturing. This should enable it to build more than one model and change quickly to new ones. Some critics say it will be a reach for Ford to get the price it wants. But dealers are especially pleased about the Five Hundred. "Taurus is dead in the water," says Jerry Reynolds, a Ford dealer in Garland, Tex., and former head of Ford's dealer council. "We've needed something between the Taurus and the Crown Victoria. This is a winner."

Ford hopes its other new models will have the benefit of its gradually improving quality. Coming late next year is a new Windstar minivan and a Mustang coupe that harkens back to that brand's glory days of the '60s. The company may also decide to import the tiny Fusion SUV it began building at a new factory in Brazil this year, according to DRI-WEFA analyst Lindblad. Beyond that, in 2006, Ford plans to bring out a compact SUV and a "multi-activity vehicle" based on the Mazda 6 series.

To stanch losses until the new models arrive, Ford is returning to a revenue system it pioneered in the '90s. Simply put, Ford tries to push its most profitable models by reducing prices enough to nudge consumers into choosing high-margin options. It's akin to airline seat management in its attempt to achieve maximum pricing while fully using available capacity. Merrill Lynch & Co. analyst John Casesa figures the technique, combined with a richer mix of profitable trucks, helped Ford raise its North American pretax margin from 3.3% in 1995 to a peak of 9.2% in 1999. The practice fell into disuse after that, but Bill Ford has signaled its return by naming Lloyd Hansen, an early backer, vice-president of revenue management. Says Lyons: "We can't push everything, so we'll pick four or five strong vehicles, get our dealers and advertising behind it, and drive traffic to the showroom."

Auto reviewers praise Ford Div.'s lone new entry for this year, the Expedition. The only knock: Its styling has barely changed. "People want to be seen driving a new car," says Lindblad. "If your neighbors can't tell the difference, why buy it?" The answer to that may well determine if William Ford can get his product-led renaissance into high gear.

By Kathleen Kerwin in Detroit

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