Commentary: The Green American Car Company?

Ford needs to reinvent itself. Pushing environment-friendly cars might do the trick

William C. Ford Jr. has already let the cat halfway out of the bag: Later this fall, Ford Motor Co. (F ) will announce a major restructuring. The chief executive needs to restore its struggling North American auto operations to profitability after a second-quarter pretax loss of $907 million. On Sept. 8, he named Mark Fields, head of Ford of Europe and the Premier Automotive Group, to run the North America unit. More layoffs and plant closings are surely on the way. But "it's not just about cutting, cutting, cutting," Ford told reporters after an Aug. 23 Detroit speech. "It's also about where are you headed, what do you stand for, and where are you going to place your bets."

Ford is keeping mum on what else he has in mind. But he's right that cost-slashing alone won't suffice. The company's top brass is debating the merits of a shift in strategy, including repositioning the carmaker as a leader in safety or in green vehicles, sources close to the company say. To distinguish itself from the Detroit pack, Ford must shape a new identity for the 21st century. It needs, to quote its old ad slogan, a better idea.

Should Ford remake itself as America's environmental car company? Until recently it was hard to see the business advantage to being green, since the majority of car buyers placed fuel economy far down their list of priorities. The big money was being made peddling huge, gas-guzzling trucks. But soaring gas prices have created a new consumer zeitgeist. Moreover, Ford could ride the existing trend of consumers migrating from traditional SUVs to more fuel-efficient, car-based crossover models. And the company could turn the necessity of raising truck mileage, imposed by the new federal rules proposed on Aug. 23, into a virtue. "It's not just a question of corporate social responsibility anymore," says Roland J. Hwang, senior policy analyst at the Natural Resources Defense Council. "Now it's a question of corporate survival."

The investment would be huge, but a big chunk of it is money Ford will have to spend anyway to meet consumer and regulatory demands. Best of all, such a strategy would take advantage of Ford's lead over its Detroit rivals in launching gas-electric hybrids -- call it "green cred." That owes a great deal to Bill Ford's environmental leanings, including his commitment to alternative vehicles and greener factories. Says one Ford insider: "To throw that away would be crazy."

Right now, though, Ford isn't sure green is the way to go. The company recently commissioned studies of its public image and declines to comment on the findings. But a source close to the auto maker says the conclusion was that Toyota Motor Corp. (TM ), with its three hybrid models, has the environmental market locked up, so Ford should capitalize on its ownership of Volvo Cars by reshaping itself as a safety leader. Some Ford vehicles already have technology pioneered at Volvo, such as curtain air bags and anti-roll systems. Safety, unlike environmentalism, holds an almost universal appeal among car buyers. Notably, on Sept. 8, Bill Ford appointed Volvo Cars chief Hans-Olov Olsson to the new post of chief marketing officer, where he will try to create an overarching corporate marketing strategy.

As Ford's 2001 debacle with Firestone (BRDCY ) tires on its Explorer SUV shows, a safety reputation is fragile. And on Sept. 7, Ford recalled 3.8 million trucks -- its third largest recall ever -- to fix a cruise-control defect that can start a fire. "Safety is something all Baby Boomers want," says Global Insight Inc. analyst John Wolkonowicz. But billing yourself as the safety company "makes you vulnerable," he adds.

The likely outcome of the debate, Ford insiders suggest, is that the carmaker will try to define itself more broadly as the U.S. technology leader, encompassing safety, environmental efforts, and other advances. Sending such a multipronged message to the public could create a muddled image. So the slogan needs to be a clear statement about what the company wants to be. Subaru (FUJHY ) has such a message. The Japanese carmaker sells itself as the all-wheel-drive company, yet still strives for quality, safety, and style. Subaru is far smaller than Ford, however. Size and scale make it much harder to manage the message.

Staking a claim as the green U.S. carmaker would be a gutsy move. For one thing, Ford would need to convince its critics that it meant business this time. In 2000, Ford vowed to boost SUV mileage by 25% over the next five years. When the economy cooled and sales plummeted, Ford's pledge went up in smoke. Environmentalists still haven't forgiven the company. And while Ford no longer makes the outsize profits it once did from gas-guzzling trucks and SUVs, vehicles such as the F-Series pickup still account for one-quarter of sales.

Going green wouldn't require Ford to abandon those segments. Some drivers will always need work trucks that can haul heavy loads or SUVs that can tow a trailer. Ford would need to offer a viable, fuel-efficient option in each of these segments, ideally one that boasts best-in-class mileage. That wouldn't necessarily require full-on hybrids. Ford is already introducing such gas-saving technologies as continuously variable transmissions on more models than its Motown rivals.

Ford could also tackle the larger task of bringing out hybrid versions of its large vehicles. The auto maker, after all, has an edge over domestic rivals on the hybrid front. It sold 10,200 hybrid Escapes, a small crossover SUV, in the first eight months of this year. And it just launched a hybrid version of the Escape's Mercury sibling, the Mariner. Ford also plans hybrid models of its new family sedans, the Ford Fusion and Mercury Milan, starting in 2008, as well as a hybrid Mazda Tribute crossover.

Gearing up for a green future wouldn't be cheap, of course. Ford is experiencing bottlenecks in the batteries and specialized transmissions required for hybrid vehicles. Cranking up supplies of those items and other electronics for each additional 200,000 hybrids would cost an estimated $330 million, according to a study by the University of Michigan's Office for the Study of Automotive Transportation. Much of that would need to go toward facilities to build transmissions and batteries. Ford is already seeking a supplier willing to build a U.S. battery factory, says one insider. Suppliers have been reluctant to invest an estimated $160 million to build a battery plant when future demand for hybrids is still uncertain.

Sales of Ford's hybrid Escape remain slim compared with Toyota's 94,000 hybrids sold in the first eight months of the year. But Ford doesn't have to out-green Toyota. To position itself as the Green American Car Company, it just needs to outmaneuver the rest of Detroit. Bill Ford promises his new initiatives will "surprise people positively." A bold declaration of environmental intent would do just that.

By Kathleen Kerwin

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