Time and Money Remain Roadblocks to Ford's Global Push
September 10, 2008
By Michelle Krebs
For years, automotive journalists, motoring enthusiasts, analysts and even some company insiders have clamored for Ford Motor Co. to sell to Americans the same vehicles they sell to Europeans - vehicles like the European Focus and the Mondeo.
The list of reasons - or excuses - as to why that wasn't possible has been lengthy. However, Alan Mulally, who took over as Ford president and CEO two years ago, has bulldozed the roadblocks, aided by high gas prices that are pushing consumers toward smaller, fuel-efficient cars and Ford's precarious back-to-the-wall situation.
Finally, albeit still more than a year away, Americans will begin seeing the same models in showrooms that Europeans have been buying for years. The biggest roadblocks remaining for Ford are time and money. Will Ford run out of one or both before it can accomplish its global push?
Different Fords to One Ford
Blame different Fords in different countries on Henry Ford, as today's Ford execs do to some extent. Henry Ford put the world on wheels one region at a time. That led to powerful regional operations operating largely autonomously.
Different strokes for different folks around the world led to a wide array of Fords being produced and sold, with virtually no sharing of models. For instance, North America long favored larger vehicles. Sold virtually nowhere else but North America, the F-150 became the best-selling vehicle in the U.S. for three decades. In contrast, North Americans largely rejected small cars those sold in other regions.
In addition to varying tastes, different regions had different cost structures. North America
became the high-cost manufacturing base, making it impossible to build a small car at a profit. That cost structure is precisely why North America stuck with the old Focus, the one still in showrooms today, rather than invest in the more modern and desirable Focus sold in Europe and elsewhere. The European Focus shares its C-1 architecture with a host of Focus derivatives, including the C-Max and Kuga, as well as the Mazda 3 and Volvo S4, V50 and C30. In the U.S., however, the return on investment to shift to the architecture just wasn't there, Derrick Kuzak, Ford's chief of global product development, said in an interview.
In total, however, Ford's overall cost structure - and losses - ballooned. Vehicles sold around the world shared little in parts, design and engineering costs and manufacturing flexibility. Despite Ford's ranking as one of the largest automakers in the world, it doesn't enjoy the economies of scale as does Toyota, the automaker Ford has set as its model. Toyota, notes Kuzak, is the only other automaker in the world that offers a full line of vehicles sold in markets globally.
All those considerations aside, Alan Mulally, an aerospace engineer who had spent 35 years at Boeing before joining Ford in September 2006, still thought it nonsensical that when he got off an airplane in one country he saw Fords that were different from those on the roads in the country from whence he came. "He saw a lot of Blue Ovals," noted Andreas Ostendorf, Ford's chief engineer of product development.
"I have some experience with this," Mulally told an audience in Detroit Monday. "At Boeing, we built one 737 for the world. We built one 777 for the world."
It wasn't long after his arrival at Ford that he quit accepting explanations and excuses and demanded no matter where he touched down on the planet in the future, he would see the same Fords on the world's roads. Ford would operate as One Ford, the new mantra at the automaker.
Roadblocks Bulldozed
In addition to an edict from above, the global push required massive organizational changes, much like General Motors made a few year ago. Today, Ford has one global product development chief and a global product development organization. It has one global manufacturing chief , one global purchasing chief, one global marketing chief with their own global organizations.
It's not rocket science, admitted Mulally, but it has been hard getting the more than century-old Ford that has operated as different Fords. And Mulally bluntly told his audience Monday that those who can't adjust are told to step aside.
Mulally's global push has been boosted by the fact that soaring gas prices have finally
pushed North Americans to get onboard with the rest of the world in driving smaller, more fuel efficient vehicles. The Internet has played a role. Ford execs point out that the Web-savvy Chinese, for instance, quickly discover through the Internet and desire the latest car fashions out of Europe.
Ford execs predict a continuing convergence of tastes globally that favors small and medium size cars. Ford forecasts in the next 20 years, small vehicles globally will represent 60 percent of the volume, 25 percent will be medium size and only 15 percent will be large vehicle.
The contract negotiated last fall with the United Auto Workers union, described by Mulally as "transformational," has also helped as has Ford's massive cost-cutting efforts in North America. The cheaper cost structure now gives the automaker a fighting chance at building small cars in North America at a profit.
Plus, what choice does Ford have? Mulally's global push is a last-ditch effort to save the automaker. Ford lost $8.7 billion in the second quarter and has pushed forward to no specific timetable for returning to profitability beyond the previous goal of 2009.
Company execs insist that Ford performs best when its back is to the wall. They point to Ford of Europe, which was in the same situation as North America but has enjoyed record success after revamping its products and operations. The same executives and their teams now heading Ford's global operations led the Ford of Europe turnaround
Ford Fiesta: The Proof Point and Template
The proof point of Mulally's plan rests with a tiny car called the Ford Fiesta. The B-segment car, which shares as much as half of its underpinnings with the Mazda2, just went on sale in Europe, where it is being assembled at two plants. It soon will be sold in China, produced at Ford's Nanjing plant. Ford will also build the Fiesta in Thailand beginning in 2009.
Only 18 months ago, Ford execs, witnessing the sea change in U.S. buyers switching to smaller, more fuel-efficient vehicles as gas prices soared, added the Americas into the game plan. Shown in concept form as the Verve at auto shows, the Fiesta will be built in Mexico and hit North American showrooms in the first quarter of 2010.
Eventually the Fiesta will be sold on five continents and in more than 50 countries. No matter where it is sold, the Fiesta will share 70 to 80 percent of its parts globally.
Fiesta will be the template to accelerating the convergence of small cars globally, said Marin Burela, executive director of Ford's global small cars.
The C-segment Focus follows with the same template, being the same car worldwide. The world Focus arrives in the U.S. in 2010. Midsize models like the Fusion and Mondeo follow the pattern shortly after.
Time, Money: Will They Run Out?
Ford has made a necessary albeit risky bet. Ford execs readily admit they are in a race against time. The automaker is spending billions - most of it borrowed -- to design and engineer its world cars and revamp its manufacturing operations to build them. Will the automaker begin to see a return on the investment before the billions run out?
And there are other questions:
Will now retreating gas prices cause American buyers to return to their big-vehicle buying ways?
How will the Fiesta, still 18 months or so away from introduction in the U.S., stack up to the competition then? Honda, Toyota and Nissan will be into their next generations of small cars by then.
Will Ford and its dealers in the U.S., better known for sellers of trucks and large vehicles, have any credibility with buyers in the market for small cars?
Most importantly, can Ford make a profit on selling small cars?
Ford execs see promising rays of hope. They, like most global auto execs, forecast that while gas prices may have dips here and there, over the long haul gas prices will be high. Environmental consciousness will remain strong. The desire for energy independence will increase. And the new sense of "ethical consumption" is emerging due to today's economic uncertainty, says Jim Farley, Ford's global marketing chief who came from Toyota only a year ago.
"Small is big," insists Farley, calling the Fiesta Ford's "catalyst for change." He sees evidence that customers are willing to pay for well-equipped, attractively designed small cars. Pricing combined with economies of scale and a lower cost structure, Ford should be able to earn a profit on small cars in a way they haven't - at least in North America - in the past.
And consumer acceptance of the Fiesta looks good, Farley says, though he says Ford has a lot of work to do in training dealers in how to sell small cars and convincing potential buyers to come to a Ford showroom. Ford held consumer clinics done in Orange County, Calif., and Rhode Island with a total of about 1,000 shoppers who were considering other B-segment cars. The would-be buyers were shown - without any badges attached - the Fiesta, Honda Fit and Toyota Yaris. Of the total, 42 percent made the Fiesta their first choice, Farley said. In other countries, the first-choice percentage was even higher.
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