Friday, October 3, 2008

fuel-efficient cars to the U.S

On a winding test track in a dense pine forest near the Dutch border, a new generation of Fords is being put through its paces. The vehicles are small, stylish and fuel-efficient — everything Ford's current North American lineup is not.

Whether Ford thrives — or even survives — depends on what is happening here, at its European proving ground, as much as in its Dearborn, Mich., boardroom. The automaker, still struggling to stop a market-share decline that began more than a decade ago, is betting that this new lineup of small cars from Europe will win American consumers back from its Asian rivals.

Ford tried a similar strategy before, albeit on a smaller scale, and largely failed. It cannot afford a repeat. The automaker has lost $23 billion since the end of 2005, including $8.7 billion in the second quarter this year. Year-over-year sales for September were down 34 percent.

Ford was caught by surprise when U.S. consumers abandoned its profitable pickups and SUVs. It needs these European cars to fill the gap.

Hoping to learn from its past to avoid repeating it, Ford is overhauling everything about how it develops new models, from executing a design to choosing parts suppliers to considering the needs of drivers around the world.

"We all have the scars on our fingertips from the last 15 or 20 years," said Andreas Ostendorf, Ford of Europe's chief engineer for product development. "Now is the time to do it right."

The poster child for Ford's earlier failures is the first-generation Focus — a critical success in Europe that was stripped down for the U.S. market, where it became a lackluster economy model.

Ford of Europe used the success of the Focus as a springboard to become a small car leader. Engineers created some of the best-handling front-wheel-drive cars on the road, while designers sketched out a new look that put Ford on the cutting edge of automotive design.

But there was little impact on Ford's U.S. showrooms.

It was the sort of narrow strategy that has typified Ford for decades: each region narrowly focused on producing vehicles for its own markets — a costly anachronism in the era of globalization.

"One Ford"

Two years ago, new CEO Alan Mulally (formerly of Boeing) walked in the door shaking his head at Ford's divided global structure. He quickly outlined a plan for uniting the company and using its global scale to turn the tide.

Under his "One Ford" plan, each region has global responsibility for doing what it does best.

Designers and engineers in Dearborn continue to work on trucks and crossovers. But the Europeans are in charge of small cars for the world.

And those European small cars are about to become a big part of the U.S. lineup.

As gasoline prices hit record highs this summer, Ford unveiled an unprecedented plan to retool truck and SUV factories in North America to produce these fuel-efficient cars for the domestic market. Ford's new Fiesta, which just debuted to rave reviews in Europe, will lead the charge.

By this time next year, workers who are today building F-150s will be training to build this sporty subcompact.

Ford's critics wonder what will be lost in translation this time. Even if the new Euro Fords that begin hitting U.S. showrooms in 2010 are as good as the ones racing through the dark pines of Belgium today, Wall Street wonders whether they can ever garner the big profits Ford's big trucks and SUVs did.

A global Focus

Making sure Ford meets vehicle performance and profitability goals means taking an entirely different approach to vehicle development, says Gunnar Hermann, the head of Ford's compact car program.

He is in charge of developing the next-generation Focus that, in 2010, will replace the two different cars that are currently called Focus in Europe and the United States.

This time, he says, the car is being designed to be sold around the world from the start by a team that includes designers and engineers from each region.

"This is the real difference now," he said. "From the first minute on, you operate really globally. And you make sure each region has a say."

Suppliers are another important part of the equation. When Ford brought the first Focus to the United States, it parceled out important components to companies that were not part of the product's development.

That introduced all sorts of quality problems. Focus buyers in the United States reported parts falling off in their driveways.

This time, Ford says global parts contracts will translate into lower components prices, a key element of its strategy to sell the vehicles profitably.

A key cost reduction

Another piece of the profit puzzle is the contract Ford signed last year with the United Auto Workers. The deal transferred responsibility for retiree health care from the company to the union, dramatically reducing the cost of producing cars in the U.S.

"The UAW contract was a game-changer," said Jim Farley, Ford's global head of marketing, sales and service. "Before that, the numbers would never have worked."

Small is big

Consumer tastes also have changed, he said, creating new opportunities for Ford.

High gas prices and economic uncertainty have soured American consumers on big vehicles. Even if gas prices come down, most people realize they are likely to go back up. And tight credit has forced many to economize.

In Europe, small cars are the norm, and consumers are willing to pay big prices for ones that deliver quality and comfort. In the United States, the base price for a Focus runs from less than $14,500 to just under $17,000. In Britain, a newer — and nicer — version starts at just under $22,000 and can go well over $35,000.

The original Focus was too expensive for Americans to even consider, so Ford stripped away many features. The new Focus is being designed from the start to sell for what Americans can afford and is being built up to give Europeans what they expect.

But Farley believes many Americans are also ready to pay top dollar for a premium small car.

So, Ford will offer inexpensive entry-level versions of its new small cars along with more expensive — and more profitable — versions.

BMW has proven Farley's point with its popular and pricey Mini Cooper, which can command well over $25,000. It remains to be seen whether fashion-forward drivers will respond to a Ford with as much an enthusiasm.

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