By on July 3, 2008

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In the nineteen-eighties, Ford CEO Donald E. Petersen's recipe to save Ford from near-bankruptcy was "higher quality products… emphasizing smaller, more efficient cars." It worked, propelling Ford past Chevrolet to world-record profits. Current CEO Allan Mulally is banking on essentially the same ingredients: de-emphasize trucks and rejuvenate the car palette with global platforms largely designed in Europe. Ford's future, perhaps its very existence, is riding on it. Is the recipe still golden?

Ford's strategy is essentially defensive, conservative and obvious. The big truck/SUV paradigm that propelled Ford to outsized profits in the nineties is broken. Ford neglected its car lines, and never bothered to learn how to produce small cars profitably. It became distracted with Jaguar and the ill-fated Premium Auto Group (PAG), at the expense of Lincoln. Quality gains unraveled with disastrous transmission and head gasket problems. And the foresighted "world car" platform plans, beginning with the 1980 Escort, were unraveled by corporate fiefdoms running amok. The result was a Balkanization of car platforms.

Centralizing development and unifying Ford's global car line-up is a necessary and essential move fordward, but it's hardly a "Bold Move." There's no guarantee that the cars will be hits.

Ford's handsome new Mondeo is already in trouble in Europe, selling at lower volumes than its predecessor. Every time Ford (and Opel) attempts to go upscale in Europe, they run into a glass ceiling, where the premium brands aggressively shove downwards with their own smaller models. Ford's global Focus and Fiesta are attractive and competitive products. But expectations for their success stateside may be inflated. In the Euro-zone, the Astra is a credible competitor to the Euro-Focus and VW Golf. Setting aside questions about profitability, the imported Astra's hardly setting the U.S. market on fire. 

The same forces shrinking Ford's market share in Europe are increasingly at work here. Whereas in the eighties Mercedes and BMW were decidedly upscale, they too are pushing downwards, along with Audi, Lexus and Infiniti. And that's just the premium brands putting on the squeeze from above, keeping potential profit margins for Ford-brand vehicles in the thin end of the wedge.

In terms of direct competition, 1981 looks positively idyllic compared to 2008. In the eighties, the Japanese were limiting imports voluntarily. The Koreans were where the Chinese are today: just getting warmed-up for the attack on the U.S. market.

Ford has no realistic hope of recreating the 20+ percent share of the passenger car market in the eighties. Those days are gone, forever. The volume-brand market is fragmenting dramatically. The advantage accumulated by Toyota and Honda is staggering. Ironically, their top-selling Camry and Accord are not global cars, but targeted US models. The tables have turned, and Ford is taking on the role of an "import.. But the solidly entrenched transplants are not going down easily like Ford and GM once did.

The best Ford can hope for is to hang on to its current share, trying desperately to offset its shrinking truck and SUV sales. And the thin profits from smaller cars are going to be a big let-down from the $10+k per vehicle Ford once minted with its trucks and SUV's.

Ford bet the family farm on the original Taurus, and won big. But there's no repeating that gamble. The mid-size car market is mature. The only gamble in that segment was made by Toyota with its Prius, and it paid off.

In 2005, Billy Ford promised to build 250k hybrids per year by the end of this decade. A year later, he recanted. Meanwhile, Toyota is closing in on a million hybrids per year. Ford builds 25k hybrid Escape/Mariners annually, keeping the volume low, below market demand, because it can't make any real money on them. Ford backed away from its bold hybrid gamble. It has the technology, but failed to crank-up production and wring out the costs for eventual profits, a la Toyota. A distinctive Focus-based hybrid sedan built in quantity could have been a genuine Prius competitor.

Yes, the hybrid Fusion is coming, but it's too little, too late. Ford is not really committed to volume hybrids, unwilling to spend its dwindling cash reserves on chasing difficult profits. And except for the obligatory show-off plug-in version of the Escape, Ford has absolutely nothing in the hopper regarding electric cars, having sold off its Think EV division years ago.

If oil prices settle down a bit, Ford's strategy may buy them some time. But if Peak Oil really is lurking around that bend in the road, and/or there is a substantial shift in consumer demand for EV's and hybrids, Ford is screwed. Every other major global manufacturer (Chrysler excepted) has serious hybrid, EV and battery development projects in high gear.

In the eighties, Ford made some genuine bold moves, faced less intense competition, and benefited from falling oil prices. History doesn't necessarily repeat itself. 

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24 Comments on “Ford’s Déjà Vu Moment, Part 2...”


  • avatar
    factotum

    Ford bet the firm on the Taurus, then let it slowly whither away to rental car poster child (I know as my grandmother had an `86 Sable, `95 Sable and now an `04 Taurus “SES”).

    All that money, time, and effort wasted by Ford now that they find themselves in a similar position as the early 80’s.

    My grandma doesn’t care much about cars, but even she saw the writing on the wall when her 95 Sable “wasn’t as nice” as her old one. Oh, and she traded in a 93 Ranger with less than 15K on the odometer for the Sable and two days later the dealership “let us know” that the transmission went out. “Quality is Job 1” my ass.

  • avatar
    eggsalad

    This just in…

    In a startling twist of history, Ford buys Tata, renames the Nano to “Model T”, and sweeps the market.

  • avatar
    RayH

    It became distracted with Jaguar and the ill-fated Premium Auto Group (PAG), at the expense of Lincoln.
    I agree with that, except I think Lincoln greatly benefited from the LS. Lack of updates and marketing killed it, however.
    If gas prices stay high, and the new North American Focus and Fiesta are 7/8ths as good as their European counterparts, I think Ford is in good shape. —– As long as they can build them with some semblance of profit.

  • avatar

    RayH : I agree with that, except I think Lincoln greatly benefited from the LS. Lack of updates and marketing killed it, however.

    Lack of updates and cost cutting (no hood ornament?) with the 1998-present Town Car would have been a lot more helpful than a re skinned Jaguar with similar reliability and even worse depreciation.

    There was absolutely no reason to tell your core buyers to go pound sand, or buy a Lexus.

    The LS wasn’t an entrenched platform with proper support, destined to be a hot-then-cold flop just like the New Edge Cougar.

  • avatar
    trk2

    As a proud owner of a 97 Mark VIII I have to say there is nothing Lincoln makes today that interests me. Since my Mark is starting to get a bit tired I’ve been shopping used LS’s which I consider to be the last true Lincoln, and are an excellent deal for used car buyers considering the outrageous depreciation they suffer from.

    It’s hard to believe that in 10 years Lincoln went from being the best selling luxury brand in the United States to an afterthought.

  • avatar
    geeber

    Paul Niedermeyer: In the Euro-zone, the Astra is a credible competitor to the Euro-Focus and VW Golf. Setting aside questions about profitability, the imported Astra’s hardly setting the U.S. market on fire.

    In all fairness, when was the last time anyone saw an ad for the Saturn Astra? GM can’t make any real money on the car as long as it is imported from Europe, so it hasn’t bothered to really promote it.

    Typical GM – launch and abandon. I’ll be surprised if the car lasts two years in the U.S. market, after which it will disappear, surrounded by the usual litany of excuses from GM that blame everything and everybody but itself.

    Ford is building the Fiesta in Mexico (so it should be profitable, even with a competitive price). It is also building the new Focus in the U.S. Given the deterioration of the dollar, a more competitive UAW contract, and the increasing willingness of Americans to pay more for more fuel-efficient cars, the Focus will probably also turn a profit. The big problem is that those profits won’t be enough to replace vanishing truck and SUV profits.

  • avatar
    scicarb

    I think Ford’s failure to introduce a production hydraulic hybrid pickup is also a major misstep. The trials that UPS and FedEx have done with their box trucks have been extremely successful, and the payback is turning out to be orders of magnitude greater than electric hybrids. The gaffs of the domestics are staggering when taken in whole. Ethanol may actually turn out to be the straw (or corn silk) that breaks the domestics’ back.

  • avatar
    FromBrazil

    Like I said in Deja Vu 1, what Ford needs this time around is product (just like the Taurus), but the product has to be different from anything they’ve done before. They have to have a small car, with a smaller than 2.0L 4 banger. Fiesta and the even smaller Ka, in sedan and hatchback and possibly even wagon form. Later they can make very small CUVs out of these smaller cars. That’s the way to go. This way they’ll attract younger buyers who don’t even have Ford on their radar. Make the interiors class-leading, the cars full of wireless interactive technology. In other categories like performance and safety and economy they don’t need to be the best, they only need to be in the top three. They have to get back the younger, greener, technologically-savvy, hipper consumer.

    That’s my two cents.

  • avatar
    psarhjinian

    I’d like to put out the counterpoint that bringing over European models might actually do them well, if they do it smartly. There’s a market for fuel-efficient, reasonably-priced models, for the first time since the eighties, a chance at selling “Smaller is Better”.

    The Asta’s problem is that GM is selling it badly. You get the worst possible powerplant–poor economy and poor performance–backed by zero marketing support and, thusly, no reason for consumers to even look at the thing. The Aura, at least, got some press-release lovin’ while the Astra gets nothing. I think GM wants it to fail so that they can go back to building “real” cars in North America.

    They’ve treated hybrids the same way: do them badly, and it’ll show the world that the concept is flawed. The problem with this logic is that GM is not >50% of the market, and their inability to make something work is no longer proof-positive of inherent inviability.

    Ford can’t sell the Focus as a replacement for the Escort, but they could sell it in lieu of the Fusion. It’s got functional space, great economy and stellar driving characteristics. The same for the Mondeo or Fusion–it could step up to replace the Taurus and people would probably accept it because the end-result is still a good car.

    The big “if” is that Ford has to be able to sell “Less is More”. GM–again, you can tell from the Astra–does not want to do this, but that doesn’t mean it can’t be done. Honda is able to sell Fits at Civic prices and Civics at near-Accord prices because the product is good; Ford could do the same. Of course, this relies on Ford Marketing to do something it’s been unable to do for at least a decade: get a cohesive message out to customers.

    I think this is Mullaly’s serious failing: Ford marketing has been just awful under his direction. Between an inconsistent message, confusing shell games with brands and products and a nonexistent budget, they’ve managed to torpedo some good products. I don’t think he’s a marketing person, and it shows.

  • avatar
    skor

    The result was a Balkanization of car platforms.

    Holy Crap! You mean various corporate factions fought it out with Kalashnikovs and RPGs at the Glass House!? I’ll bet that broke a lot of windows.

  • avatar
    Paul Niedermeyer

    skor, Balkanization = fragmentation (not necessarily of glass, either). But who knows?

  • avatar
    jerry weber

    For Ford & Chrysler the year just keeps getting worse. Both companies have new pickups to debut this year and nobody cares. It’s easy to say their execs had no way of knowing three years ago that fuel cost would crater the present truck market. However, some people at Honda & Toyota must have been paying attention to the what if’s because they hedged their bets. Both brought out new trucks with Toyota actually opening a new plant in Texas for pickups. However, both companies remained primarily in the fuel efficient car business. Here, Honda is more true to it’s original mission than toyota. They don’t build V8’s and they are much heavier in smaller cars.Honda has now passed Chrylser and is closing in on Ford in monthly sales. How do you tell your stockholders, public and anyone interested that you squandered a 100 year legacy in the case of Ford? Finally, some of the writers above keep waxing hopefully about what Ford will do in the future. Do you think toyota, Honda, Nissan, Huyndai, and others will stop the game in the 9th inning and let the Americans catch up? They are a constantly moving target and their products you see now are not what Ford will have to sell against in a couple of years.

  • avatar
    folkdancer

    psarhjinian :
    They’ve (Ford & GM) treated hybrids the same way: do them badly, and it’ll show the world that the concept is flawed.

    This did work back in the 70’s. The Pinto and Vega were terrible. Ford and GM wanted to make sure we hated small cars. Now they seem to be trying the same tactic with hybrids.

    geeber :
    Typical GM – launch and abandon.
    This is a real flaw with mostly U.S. car companies. The original VW Beatle use to advertise showing what looked like the same car that had been selling for 20 years but the caption read something like, “we made 139 improvements this year”.
    The present Prius on the road looks even more popular than it actually is because the overall design has remained the same for about 10 years. They appear to be all over the place but we are looking at 10 years of cars. I haven’t looked closely enough at my friends 05 to tell the difference to my 08 Prius.

    I think it helps sales to have a slightly oddball looking car (along with good engineering) and keep it around long enough (with the same look) so that everytime we turn around we see another one.

  • avatar
    Geotpf

    The Prius was all-new for model year 2004, so the design is four or five model years old, not ten. There was a previous Prius, but it was smaller, a sedan instead of a hatchback, and got worse fuel economy.

  • avatar

    “Every other major global manufacturer (Chrysler excepted) has serious hybrid, EV and battery development projects in high gear.”

    I am curious what is coming out of VW, BMW and Mercedes. None of these guys have any products to offer, but seem to be focused on marketing “green green green”. GM has hybrids, yes, that save you all of 2 mpg on the Malibu/Aura, or are hidden away inside SUVs no one wants.

    Seems to me the entire auto industry just about handed Toyota the hybrid market, giving them a huge advantage. How is any other car maker going to catch up?

  • avatar
    Paul Niedermeyer

    GBG: I am curious what is coming out of VW, BMW and Mercedes.

    Both Daimler and VW have serious battery development projects happening for EV’s and hybrids. They’re pretty scared about the shift from diesels to hybrids and EV’s, and don’t want to be left behind. The Smart is in the process of being electrified, and Mercedes has its own hybrid system in addition to being a partner with GM and BMW in the two-mode.

    BMW does not have a very focused battery/EV program, but has other alt-tech programs going, including the (foolish) hydrogen vehicles.

  • avatar
    rtz

    A plug in Escape, electric Focus. Those would sell well.

    An electric Mustang that would beat Corvette’s and Telsa’s?

    I might just have to build one myself to do just that! Will cost an easy $20,000..

  • avatar
    Gardiner Westbound

    I still see lots of Lincoln LS on the roads. People seem to like the way they look and drive. They don’t like the clear evidence of cost cutting, including frequent repairs and steep depreciation. A few more bucks spent on quality improvements could have generated repeat customers.

    An owner queried the dealer, “Why does Ford put a $5 jack in a $40,000 car?”

    He replied, “Because they ran out of $2 ones!”

  • avatar
    50merc

    FTA: “Quality gains unraveled with disastrous transmission and head gasket problems.”
    jerry weber: “How do you tell your stockholders, public and anyone interested that you squandered a 100 year legacy in the case of Ford?”

    Actually, 105 years for Ford, but GM is celebrating (observing?) its 100th anniversary this year.

    How indeed could such vast, mighty enterprises squander their lead? Ford’s 3.8L head gasket fiasco is a case in point. Best I can determine, the problem is due to poor engineering of intake-side head bolts and inferior gasket material. How could they make such terrible mistakes? Incompetence, short-sightedness, or malfeasance? Every repair under warranty ate the profit on a bunch of cars. Every unhappy customer warned potential customers away. Management and the Board of Directors should have demanded to know the who and why–and fired all the people responsible for the debacle. Did they? Ford and GM keep their secrets better than the CIA and NSA, but I suspect the answer is: they did nothing.

  • avatar
    RobertSD

    Just to keep things truthful, again, I need to point out that Ford’s hybrid program is alive and well. Just because they haven’t told you about their product plans for the next 2-3 years like GM and Toyota doesn’t mean they don’t have them.

    Right now, Ford is the #3 hybrid seller. Next year, they will be #3 and long way above #4 at ~50-60k units in the US. Honda will probably hit ~75k next year. Toyota will be up in ~250-300k territory. Ford’s battery research and advanced design is being done by Johnson Controls. If some rumors are to be believed, Ford could have as many as eight hybrid models by the end of 2010. Their current constraint is actually two-fold: battery supply and cost/benefit of getting additional batteries. Their contract says 25k/year. The supplier, because there is no excess capacity, requires much higher price for incremental units, which makes hybrids less profitable, but extra supply lowers transaction price – Ford is break-even this year at 25,000 units. So, yeah, they’ve chosen to go the small but profitable route.

    Their plug-in program is hardly just a publicity play, certainly far less so than Toyota. Toyota PR: “We’re giving 100 customers PHEV Prii to test their real-world viability.” BS. You can test endurance and durability in your regular testing process. You are giving them out to look good. At least Ford’s scattering their fleet to work with utility companies to develop a business model with the power grid to offset the high cost of PHEVs. It’s still PR, make no mistake, but Toyota and GM just reek of the greener-than-thou air.

    So what is Ford’s real problem right now? Product and perception. Frankly, 90% of drivers cannot tell the difference between how a Focus or Civic drives. Both look odd outside, both have issues inside. However, the Civic has a reputation, and Ford hasn’t found a way to crack that nut – Ford can’t even make consideration lists! In reality, Ford’s quality levels are parity and their dealer service has improved immensely, their gas mileage is competitive on a per model basis and their content is actually a step ahead of most of the competition, but Ford can’t get on people’s shopping lists. This will still be a problem when the 2011 Focus launches and is more than competitive with everything in the class.

    Their product problem is actually not what you’re thinking. They have the correct product coming, but the problem is their mix and what is coming sooner and later. The Fiesta, for example, needs to be in U.S. dealers in 2009. The truck line-up needs some major rationalizing very quickly. But as for everything else, the 2009 Escape is much improved, and the Focus really just needs some finishing touches – its platform is not really its problem contrary to popular belief on this forum (if not reflected in sales). The Fusion, Mustang, Taurus, Ecoboost and a few other things come in 2009 for Ford. They just have to get the mix right when they launch. That means if the market takes 240,000 Fusions after the refresh, Ford needs that capacity instead of their 180,000 stretched limit.

    Ford has been operating in a particular way for the better part of 15 years, and they were counting on having 2 more years to flip everything over before this run up in gas prices. So, now they are scrambling to do in 2-3 years what they thought they’d do in 4-5 or so. It’s going to be tight – I have no doubt about it – but they do have the cash and management team to make a good run at it. The rest is somewhat out of their hands.

  • avatar
    Steven Lang

    “So what is Ford’s real problem right now? Product and perception. Frankly, 90% of drivers cannot tell the difference between how a Focus or Civic drives. Both look odd outside, both have issues inside. However, the Civic has a reputation, and Ford hasn’t found a way to crack that nut – Ford can’t even make consideration lists! In reality, Ford’s quality levels are parity and their dealer service has improved immensely, their gas mileage is competitive on a per model basis and their content is actually a step ahead of most of the competition, but Ford can’t get on people’s shopping lists. This will still be a problem when the 2011 Focus launches and is more than competitive with everything in the class.”

    RobertSD, you are the unofficial winner of TTAC’s quote of the week.

    When folks who could care less about cars ask me what they should buy, I usually recommend a Ford product among others.

    A near-new Focus, Fusion, Five Hundred, Escape, Crown Vic and Mercury clones all have the benefit of high initial depreciation and average to above average quality.

    The last generation Focus can hit the high 30’s in MPG, is fun to drive, and cost several thousands less than the Civic and Corolla.

    The Fusion has very good quality from what I’ve seen at the auctions, offers a more sporting ride than most of the competition, and is more or less the equivalent of a second tier brand with first tier competitiveness… much like the Hyundai Sonata which is a better choice if you value luxury.

    The Five Hundred is really an old(er) person’s car just like the Azera, Avalon, Amati, Lucerne, etc. For the driving these folks usually do it all comes down to price… although I still can’t get myself to recommend an Amati.

    The Escape is the prototypical compact SUV. Ford satisfied 90+% of the needs of modern day suburban SUV drivers with it, and it’s literally used as automotive statues at the sales along with most every other SUV of the last several years. Four cylinder models are still going for a premium though.

    Then you have discontinued models like the LS, Continental, Freestar, and Taurus. I just bought an absolutely immaculate silver LS with low miles for only $4000, bought a 2005 Freestar SES for $4750 that I recently used for a trip to Disney, and have actually bought several Continentals from the late 90’s and early 2000’s for anywhere between $1700 and $2800. The heavy models aren’t selling… but they’re very nice on the highway IF you can tolerate cheap plastic in a few non-critical areas.

    These cars have simply depreciated like there’s no tomorrow, and as used cars, they are now good values. Unfortunately they’re also the legacy of an obscenely mismanaged company that deserved far better support from the mothership.

  • avatar
    Beelzebubba

    The Taurus is the poster child for all that is wrong with Ford and with the Big 2.whatever as a whole. It was innovative and daring in the beginning, but competitors quickly caught up and Ford just let “good enough” suffice. The ’92 refresh didn’t even put it in the same ballpark as the ’92 Accord or Camry.

    A ’96 redesign that left the buying public and automotive press collectively questioning- “WTF???”. By the time the ’00 model was toned down from the dolphin/ovoid-theme into anonymous rental fleet fodder, the car was a pathetic caricature of the ground-breaking ’86 model.

    Why is it that the Japanese and South Korean automakers realize, even when they hit a homerun with a vehicle, progress must continue. Today’s homerun is tomorrow’s has-been.

    It also baffles me that they’d bring back the Taurus name to replace the Five Hundred moniker. Would Chevrolet drop the Cobalt name to revive the Cavalier, or re-name the Aveo the Chevy Chevette? All examples of fruit left on the vine to rot and wither….then fall to the ground and turn into compost.

    To seal their fate, they repeated the process with the Ford Focus. Only this time around, it didn’t take 20 years to plummet from award-winning, industry-leader to the frequent-flyers-most-avoided on the rental lot. The Focus made it in under eight years!

  • avatar
    carguy622

    As others have said Ford’s, and GM and Chrysler’s, problem is letting good products rot. The original Taurus is and A1 example. I was 7 when my grandmother got her 1988 Taurus GL, and at 7 I loved that car. I marveled at the rear seat armrest. When I was able to drive I was going to buy a Taurus. It was a good car, it has some problems, but we kept it for 9 years. Got a 1997 Taurus, I actually liked the look of it, but the quality was terrible. The transmission shifted crudely, and the brakes were awful. We replaced power door lock motors like toilet paper. Replaced that with a 2002 Taurus, pushed for my grandmother to buy a Camry V6 instead, but she fell hook, line, and sinker for the 0% financing. If she had the Camry though she would have had some resale value in the car and a more refined driving experience.

    Next Ford introduced the Contour/Mystique combo. They were great cars, loved by the enthusiasts and Consumer Reports, but too small. So, unlike Mazda, who is bringing a larger Mazda6 to replace the great, but too small current model, they abandon the cars.

    Lastly, the Focus, it started out great but went down in flames. A friend of mine who only likes cars based on cuteness, and has only driven Hondas, drove a friends 2000 Focus ZX3 and said it was fun. Maybe if the quality and reputation was improved she would have bought one, but instead of nurturing the Focus they starved it.

  • avatar
    davejay

    The Asta’s problem is that GM is selling it badly. You get the worst possible powerplant–poor economy and poor performance–backed by zero marketing support and, thusly, no reason for consumers to even look at the thing.

    Personally, I’d say the Astra’s problem is that it’s too expensive for the relatively poor gas mileage/performance/lack of now-basic amenities like an MP3 player jack. At least, that’s why I skipped it and bought a Versa instead…$2000 less, with sunroof, leather wheel and door/armrest surfaces, ipod wiring, hands-free bluetooth phone support…it’s simply outclassed in this market. That I also turned down the VW Golf isn’t a surprise either, considering the reliability issues there — but in Europe, there is no Versa (Tiida.)

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