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Ford's challenge: Sustaining the turnaround

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Ford's challenge: Sustaining the turnaround

Jamie LaReau

and Charles Child and Richard Johnson

Automotive News -- May 10, 2010 - 12:01 am ET

Toyota has piled on incentives. How has that affected Ford's strategy?

We've been very disciplined over the past couple of years. We're going to keep our dealers competitive. But we're not going to go to incentive levels that damage the brand, hurt our customers' residual values and, ultimately, hurt the financial performance of our business and our dealers' businesses.

Mark Fields is one of Ford CEO Alan Mulally's chief lieutenants in a turnaround effort that resulted in a $2.1 billion net profit in the first quarter and rapidly escalating U.S. market share.

Fields, 49, took over as Ford Motor Co.'s president of the Americas in October 2005 after three years in top jobs in Europe. From 2000 to 2002, he was president of Mazda Motor Corp.

Fields was interviewed April 28 by Staff Reporter Jamie LaReau, News Editor Charles Child and Managing Editor Richard Johnson.

Ford Motor Co.'s U.S. market share was 17.4 percent in the first quarter, up from 14.7 percent in the first quarter of 2009. Can you sustain and even increase that share?

Market share is more of an output now than a goal. It's making sure we have the right products and we're getting the right revenue for our products. And when you look at those things, they're starting to get stronger each quarter, and it's reflected in our market share -- both retail and fleet. And fleet is not a bad word at Ford. It's like anything else in life: You have to have the right balance of it.

What role have stronger residuals played in your recent results?

There's nothing that ticks a customer off more than when they're bringing their product in after three or four years and realize that it's worth less than they expected. And so we listened to customers and said that's a big deal. When you look at the residual values of a number of our key vehicles, they've gone up significantly, particularly with the new models.

I think the advantage from a financial standpoint to our business is our pricing was up significantly, and our transaction prices were up, because with improved residuals, you don't have to incentivize the product as much.

When the Fiesta comes this summer, will you be able to achieve the kind of pricing Ford gets for that car in Europe, where it's more of a family-type vehicle?

We want to really inject the fact that if you are a customer for a B-car, you don't have to sacrifice on great-looking design. And you don't have to sacrifice on the features that are being offered in the vehicle.

Gas prices are going up and will be very volatile, and that's our view in the world. So we've seen people downsize. They have been willing to downsize, but what they're not willing to downsize is the kind of features that they had in their previous vehicles. So this has been our approach with the Fiesta -- that when you go into that segment, you don't have to compromise in any of those ways. And hopefully we'll see that in a manner in which people order the vehicles and with the initial reservations, the mix is very good.

What's your dealer profitability right now?

I won't get into specific numbers, but our dealer profitability was up significantly in 2009. Our dealers did a wonderful job of paring their costs, but one of the biggest pieces was a reduction in their floorplan expense. And that really gets to our strategy of balancing production with demand. Part of it is because our market share is up and the industry is up. But the other interesting piece is their floorplan expenses are still down.

The reason for that is not because we cut inventories. We've been able to work with them to reduce complexity in terms of the options and the series that we offer. So it's allowing our dealers to order more frequently, and the inventory is moving faster off their lots.

Is there still attrition in Ford's dealer network?

Yes. We've reduced our dealer network since the end of 2005 in the neighborhood of about 20 percent.

Has that trend slowed in recent months?

It's still going. Granted, with the economy, our business is doing better, and the industry seems to have bottomed out. You know that does slow things down a bit. But we're still moving forward. It has been collaborative because I'd rather spend our time working together with our dealers than being in court.

We've laid it out by major markets because the issue really is in the multiple-point markets, not so much in the single-point markets or the rural areas. We continue to work with the dealers to say, "Here's our view going forward of the industry in that particular market -- our market share projections. And, here is what throughput we think is necessary for our dealers to earn an appropriate return on their investment. And here is how many dealers we think the market will support." And then we work with them.

How many dealers do you expect to have by the end of the year?

We ended the first quarter with 3,513 dealerships. That's down from over 4,400 dealers at the end of '05. We don't have a magic number that says here's what we're going after, because there are a lot of variables in there -- our market share, our view of the industry, those type of things. But you know we'll continue to work that down so that we get a throughput that our dealers need to be profitable.

Now that it's getting more difficult to reduce the network, will Ford have to come forth with more cash to make deals happen?

That's going to depend. Each one of these actions, they're like snowflakes, they're all kind of unique. We have participated financially in a number of these where they made sense and will continue to do so. But it'll depend on the situation, and it'll depend on the market.

Ford is carrying $34.3 billion in debt. How quickly will that come down?

We want to get ourselves over time back to investment grade. The best way to do that is to improve our operational performance. We have taken actions over the past year or so to reduce our debt. But we are absolutely committed to making sure that the product pipeline remains full.

Does the level of debt hold you back in terms of hiring, product development and marketing?

It's a cost to the business -- interest expense -- and we want to reduce that. But it's not in any way, shape or form making us look at the business and say, "We have to spend less on marketing," for example. We've been actually very proactive over the last couple of years in our marketing budgets to make sure that as the product pipeline is coming in, we have the adequate marketing budgets.

People talk about a product revolution at Ford, and, yes, the Fusion and Taurus sedans are selling. And Ford has the restyled 2011 Super Duty. But in terms of the larger product revolution, there have been small gains rather than revolutionary changes.

If you look at the overall average age of our product lineup today vs. where it was three or four years ago, we've gone from one of the oldest in the industry to one of the freshest. When you look at last year, our [number of] product launches was one of the highest we've ever had in decades. I'm talking both new vehicles and powertrains. This year alone, we will replace about 30 percent of our volume with either all-new or significantly freshened products. So our pipeline has been full.

Will Lincoln offer a vehicle smaller than the MKZ?

The luxury end of the business is still going through a transition. The big question is: Are people going to return to the marketplace with the same behaviors as in the past, whether it be the luxury segment or the nonpremium segment? And I think in the luxury end that people will be open to buying smaller vehicles.

I'm not going to talk about future product plans, but I think you've seen what we've done with Lincoln over the past three to 3 1/2 years. We've really taken Lincoln to another level, and I think our challenge going forward is our opportunity to take it to another level. And we're looking at all those things right now. What will people's behaviors be and what does that mean for what kind of products luxury customers would be interested in.

Can you take Lincoln overseas?

I wouldn't rule that out. But we're focusing solely right now here on North America.

Ford CFO Lewis Booth says Ford Credit will turn a profit again this year. What does that mean for leasing and for incentives?

That's allowing us to offer more competitive rates for our dealers as they're looking to close sales with customers. On the leasing side, we've said that we're not going back to the old days of 20 percent-plus of leasing because I think that was a little excessive at the time. But we have never gotten out of offering leasing to our customers, and we actually have improved the lease percentage over the past six months.

What is your lease percentage rate?

It's around 10 percent. I think you'll see us stay somewhere in a tight band around that.

Read more: http://www.autonews.com/article/20100510/OEM02/305109982/1179#ixzz0nX9PXiTg

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