The Globe and Mail
The Globe and Mail
Keeping Ford out of the Ditch
By JEREMY CATO
Thursday, June 30, 2005 Updated at 11:17 AM EDT
Globe and Mail Update
DETROIT — Phil Martens, standing beside the vitally important Ford Fusion midsize car coming this fall as a 2006 model, is looking remarkably calm for a man at the eye of a decision-making storm.
Of all Ford's most senior executives, it could be argued that the choices he is making as Ford's chief "car guy" in North America will largely determine whether the auto maker's shaky turnaround plan will avoid driving straight into the ditch.
Certainly there is good reason to suspect the worse. Sales of Ford's big, profitable sport utility vehicles, as well as the Ranger small pickup and even the Focus compact car have all slowed.
Ford just recently announced more job cuts (1,750 salaried workers), the elimination of bonuses for white-collar managers and the suspension of matching pension contributions for U.S. workers. Profit will be lower than expected this year (about $2.2-billion [U.S.] or $1.5-billion less than originally planned), and North American operations are not profitable at all.
But as more than one expert has noted, it is not possible for a car company to cost-cut its way to growth and prosperity -- not in a viciously competitive business that requires massive investments in product development and manufacturing facilities.
Martens, a natty dresser who is friendly, apparently unflappable and youthful-looking despite a healthy shock of grey hair, has known this since 2003, when he became Ford's vice-president of product creation.
The Fusion, conceived to compete in the heart of the midsize market against the Honda Accord, Toyota Camry and even some versions of Chrysler's popular 300, is most certainly his baby and for Ford much depends on its success.
In terms of styling, the Fusion may just be what Ford needs to lead it away from a series of conservative designs. With its three-bar grille and multi-element square headlamps, the Fusion bears a strong resemblance to the critically acclaimed 427 concept car shown in Detroit two years ago.
And then there is what's underneath the sheet metal. Based on a lengthened, stiffened version of the Mazda6 architecture Martens oversaw when, in his previous job, he led product development at Ford's Japanese affiliate, Mazda Motor Corp. in Hiroshima, the Fusion represents more than just one car.
It is, in fact, one of perhaps as many as 10 different vehicles Ford hopes to spin off of similar component sets and assembly procedures -- a platform or vehicle architecture, in other words.
Other possible future variants include the '06 Lincoln Zephyr executive sports sedan and Mercury Milan sedan (not sold in Canada), the '07 Lincoln Aviator crossover utility vehicle, some sort of Ford-brand sport wagon and even the next-generation Ford minivan to replace the current Freestar in 2008 or 2009.
"Architecturally, the platform has the capability to handle a wide range of product and functional attributes," says Martens, whose meteoric rise in the company is virtually unprecedented at ultra-conservative Ford.
It was only about two years ago that Martens arrived at company headquarters in Dearborn, Mich., after his stint at Mazda. Before that he worked in Cologne, Germany, where he helped develop the Ford Mondeo at Ford of Europe.
So he has the global experience now necessary to ascend to the highest ranks at Ford. "It [global experience] is really the ticket to entry," smiles Martens.
And for extremely practical reasons. Ford, not unlike its cross-town rival General Motors, is attempting to streamline and cost-cut its product development into a kind of single global machine that efficiently mixes and matches the best materials, ideas and procedures from all of Ford Motor Co.'s brands -- including not just Mazda, but also Volvo, Jaguar, Land Rover and Aston Martin in Europe, as well as the Ford, Lincoln and Mercury brands on the North American front.
If successful, Ford could end up with a well-disciplined product creation culture not unlike what Martens ran at Mazda. Except, of course, at Ford the process would work on a vastly larger, completely global scale.
The first early examples of what Ford is aiming to achieve can be seen in two global joint engineering ventures.
First, there is the case of Ford's European Focus, the Mazda3 and Volvo's S40/V50. They share a common platform and were developed in Cologne with input from all three Ford brands. In Europe, the Focus is a huge success but that version of the small car is not sold in North America. Around the world, the Mazda3 is a smash hit, while the S40/V50 has been a more modest success.
A second example of what Ford is aiming for comes in the shape of the Ford Five Hundred sedan and Freestyle crossover utility vehicle or CUV.
Both ride on an architecture adapted from Volvo's P2 platform, which forms the basis for the Volvo S80, S60, V70 and XC90. So far, the Five Hundred and Freestyle have been only moderately well received. Critics say Ford missed the styling boat with both models -- and bland designs just don't sell in today's highly charged, ultra-competitive new-car market.
The more aggressively styled Fusion and its ilk, though, represent a much bigger test. Ford would like to see the CD3 family of vehicles add up to annual sales of perhaps as many as 800,000 units a year, compared to the hoped-for combined sales of about 250,000 units for the Five Hundred and Freestyle.
Aside from creating varied models for less cost, another goal for Martens and his team is to speed up dramatically the whole process of taking vehicles from the earliest concept stage to showroom-ready without compromising quality and also assuring they can be efficiently assembled in flexible plants.
It is a huge job, but one at which Ford and other North American-based auto makers simply must succeed if they are to survive.
A new Merrill Lynch report, entitled Car Wars 2006-2009: The Product Pipeline and its Investment Implications, illustrates the depth and breadth of the problem Ford and GM are facing. According to Merrill Lynch, both companies are doomed to continue shedding market share because they are not competitive in terms of updating their model lineups quickly and comprehensively.
According to Merrill Lynch estimates, Ford and GM respectively plan to replace just 15 per cent and 16 per cent of their lineups a year on average over the next four years. Korean, Japanese and European car companies can be expected to update their lineups much more quickly.
The Koreans -- Kia and Hyundai, primarily -- appear to be the most aggressive at model renewal. They plan to renew 30 per cent of their entire lineups each year. Meanwhile, the Japanese collectively are at a 21 per cent renewal rate and the Europeans at 15 per cent. DaimlerChrysler is at 17 pert cent.
Merrill Lynch argues that both Ford and GM appear to be launching more models than in the past, but they still lag the competition. Both companies are apparently under-spending on research and development of new models, a contention GM and Ford dismiss.
Nonetheless, John Casesa, the Merrill Lynch auto analyst who is the primary author of the study, notes that between 2006-2009 the average estimated age of Ford's model lineup -- that is, how long it has been since the last significant redesign -- will be 3.6 years, compared to 3.1 years for the models in GM showrooms, 2.6 for the Europeans, 2.5 for the Japanese and DaimlerChrysler and 1.7 for the Koreans.
Casesa suggests Ford and GM need to spend more on developing new models so that the age of its fleet is younger and more competitive.
Of course, all auto makers guard their future product plans zealously for competitive reasons; the conclusions by Merrill Lynch are based on proprietary research using a variety of sources. Therefore, the conclusions in the Merrill Lynch study have not been confirmed by the auto makers themselves.
But no one argues that the new-vehicle marketplace is exploding with new models of all shapes and variety. Merrill Lynch says an average of 50 new vehicles will be introduced each year between 2006-2009. That compares with the historical rate of about 35 new cars and trucks a year.
Overall, 71 per cent of the vehicles in showrooms will be replaced between 2006-2009. Not enough of those new models will be Fords, Lincolns, Chevrolets, Pontiacs and the rest of the two giant auto makers' collective brands. That, in a nutshell, explains why the two biggest North American auto makers are struggling to be profitable.
"The revenue problem will be solved with new product and that is solved with investment," Casesa said in a conference call. "You have to spend the money on the product and the people who develop the product."
That means capital investment on new manufacturing equipment and on research and development. In an industry that on average spends about 10 per cent of total revenues in these areas, Ford spends just 8.2 per cent of revenues, GM 8.0 per cent and the Chrysler Group 8.5 per cent, says Merrill Lynch.
If that is true, Martens and his fellow product creators at Ford have less money to spend on developing new models, so they better be smarter at what they do and how they leverage Ford's global assets and know-how.
Ford has also surrounded him with a young and aggressive team, including his deputy Hua Thai-Tang who is responsible for boosting the fortunes of Ford's underutilized Special Vehicle Team (SVT) high performance unit.
There is also a relatively new head of design for all of Ford's North American brands in Peter Horbury, who enjoyed success reshaping Volvo styling when he led design for the Swedish auto maker. Horbury says he is particularly interested in Ford's Lincoln luxury brand, a unit that continues to struggle to define itself in the marketplace.
Clearly there is promise and potential there, though the challenges ahead remain daunting for Ford.
"It's taken a while to put the team together but we think we're there," says Martens.
The Fusion and its many cousins represent the first big test of just how effective that team will be.
The Five Hundred will get newer styling for 2008.
Here is a look at what we can expect from Ford and its various brands.
Ford F-250/F-350 heavy duty pickups: Important workhorses sold to serious buyers who want power, reliability and functionality
Lincoln Mark LT pickup: A challenger to Cadillac's Escalade EXV
Land Rover Range Rover Sport: A racy luxury SUV
Land Rover Range Rover -- new engines, including a 400-horsepower supercharged version
Lincoln Zephyr: A mid-sized executive sedan aimed at the BMW 3-Series and similar cars
Lincoln Town Car: The big livery car is redesigned
Volvo C70: Sport coupe
Volvo S60: A redesigned executive sedan
Ford Fusion: A mid-size family car
Ford Crown Victoria freshened: Possible new police car
Ford Explorer freshened: Popular SUV updated
Ford Ranger freshened: Compact pickup updated
Ford Escape: Compact SUV updated
Volvo XC50: New small SUV
Lincoln Aviator: New car-based utility
Ford/Mercury compact SUV: Possible new car-based entry
Jaguar XK: Key sports car in Jaguar's revival is redesigned
Lincoln flagship sedan: Details sketchy
Volvo C50 coupe and convertible: Swedish division of Ford continues to expand lineup
Ford mid-sized sport wagon makes its debut: Expanding market for car-based wagons is addressed
Ford Explorer Sport Trac redesigned: New rival for Honda Ridgeline pickup
Ford Focus redesigned: Key volume small car
Ford Five Hundred freshened: Larger family sedan gets newer styling
Ford Freestyle freshened: Crossover utility gets an update
Ford E-series van: Working van
Ford Expedition: Large SUV is updated
Lincoln Navigator: Large luxury SUV is updated
Jaguar S-Type: Rival to Mercedes-Benz E-class and BMW 5-series updated
Lincoln LS: Updated design of American luxury in a larger sedan
Volvo V70 wagon: Key model in Volvo lineup is redesigned
Ford/Mercury mid-size hybrid sedan: Ford Fusion is likely to be available in a hybrid
Source: Merrill Lynch, Automotive News and industry sources