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Subject: Blue Oval Blog

Author: ScottR@LAP

[ Next Thread | Previous Thread | Next Message | Previous Message ] Date Posted: 04:18:41 01/20/06 Fri Something to think about January 17th, 2006 Ford has not released their full 2005 financial results yet. But they promise to reveal a year of substantial losses in North America. Ford also lost about a percentage point of marketshare this past year (amounting to about 175,000 vehicles). I want you to take a look at some numbers that put that marketshare loss in perspective. Assume that Ford increased incentive spending $500 per vehicle in 2005, and sold an extra 175,000 vehicles. That would bring Ford’s total vehicle sales for 2005 to 3.34 million vehicles, and Ford would end the year with the same marketshare they had at the beginning. But at what cost? Multiply $500 by 3.34 million, and you get 1.65 billion dollars in additional costs in North America. And those costs are either in cash payments or in reduced revenue per unit, meaning a 1.65 billion dollar reduction in cash on hand, severely impacting Ford’s liqudity. With Ford’s North American operations already heavily in the red, the idea of spending over one and a half billion dollars in order to retain (or possibly grow) marketshare is the height of insanity. One need only look as far as GM to see the havoc that high incentive spending wreaks on the bottom line GM’s incentive spending per vehicle last year was roughly $500 more than Ford. Understand, when looking at Ford’s recent overall marketshare declines, that Ford has made a business decision to avoid chasing marketshare with even heavier discounting. Posted in Home | No Comments » Small cars, big plans January 11th, 2006 Ford is planning a major small car offensive ———————————————- My sources are among the highest at Ford Motor. I can’t name them, of course, but you know who they are. The gist of it is this: Ford is planning to launch several small vehicles likely within a very short window, and possibly under a separate sub-brand. There is probably no project at Ford surrounded by more secrecy, and yet the truth has escaped. I can’t tell you what the name of the sub-brand will be, or if it will even be named. Expect these small cars to be marketed primarily to young urban first-time buyers, but with design and functionality that will connect with a wider swath of the buying public. Ford’s goal: Attractive cars that, as an added bonus, are inexpensive to own and operate. Sustainability in this market is not derived from being the cheapest product on the market. Sustainability will come through products that are properly marketed, and properly equipped to make them objects of desire, not necessity. The difference comes down to either courting buyers who will say, “this is the biggest new car I could afford” or buyers who will say, “this car meets my wants and needs.” More details will no doubt leak out as time passes. Ford is still in the early stages of this project, although market research into the “B” car segment in North America has been going on since the Bronco concept was introduced in 2004. The decision to pursue a suite of small vehicles appears to be a relatively recent one; and was tipped off by Mark Fields during remarks at the Los Angeles Autoshow. Ford’s move to dramatically expand its small car lineup draws off the strength of the company’s global product and engineering portfolio. Mazda is currently leading development of a global small car architecture called “B1″ and this globally shared architecture will allow Ford to spin off a variety of “lifestyle” vehicles in the U.S., with substantially lower costs per unit to develop. Flexible manufacturing of over a million global units per year of this B1 architecture will also reduce per unit costs. These advantages will allow Ford to offer several vehicles for a minimal amount per unit more than the cost required to design and manufacture a single vehicle. (Excited? You’ve seen the same comments from the same sources–the only new wrinkle is that Ford is serious about a mutliple product foray into the small car arena; and that was hinted at by Mark Fields in LA.) Posted in Home | No Comments » The Bias Slips Out January 7th, 2006 David Champion, director of automobile testing at Consumers Union (publishers of Consumer Reports): “But it is a little bit worrying when the worst plant in the U.S. is actually a Nissan import plant.” Touché. I can’t argue with that. If your prejudice is that domestic automakers are inherently inferior, and union labor is inherently inferior, then yes, this is “a little bit worrying.” Further down in the article, you find out that Champion also works for the California Department of Tourism: “you’re telling them they’ve got to move out of beautiful southern California” So much for “unbiased” coverage from Consumer Reports. All I can say is I’m glad Champion’s not making travel recommendations as well as vehicle purchase recommendations. Posted in Home | No Comments » Aliens Eat Mark Fields’ Brain January 5th, 2006 Mark Fields, a Ford lifer, sounded like anything but yesterday morning in LA. Far from being just another “things are tough all over, and we need a break” speech, far from a plea for patience, Fields came out sounding like he worked for a vibrant company with high hopes and a bright future. In prepared comments he didn’t use the words “union”, “healthcare”, or “legacy costs” even once. It’s not like these issues went unacknowledged, but all Fields did was briefly note “the cumulative impact of business decisions made – or not made – in Detroit over the past several years, or in some cases, decades.” That was pretty much the beginning and end of comments about Ford’s own problems. Probably because Fields seems to grasp that most people just don’t care. After several years of public lamentation on the woeful state of the industry, it is truly refreshing to see optimism from the top offices of Ford Motor Company. Ford is, in the end, nothing more than the sum of all the work of all of its employees; and if the people at the top promote a culture of blame, the people that work for the company will embrace that culture. All accountability goes out the window if you think your company’s chances for success are already doomed by factors beyond your control (the economy, the union, management, legacy costs, the Japanese). And let’s be honest. While Ford can’t hold a candle to the blame shifting that has gone on at GM, Ford has had its share of executives looking for excuses for poor performance. Think about all the blame that has been passed around in Detroit: Blame the union, blame the retirees, blame the Japanese, blame the Congress, blame the suppliers, blame the customers, blame the “bean counters”, blame the dealers, blame the Koreans, blame Consumers Union, blame the NHTSA, blame the trial lawyers, blame the tree-huggers… So what happened to Fields? Maybe he spent so much time outside of Detroit he never bought into the “us vs. the World” culture that seems to have leached into almost every aspect of the domestic car business. This guy has worked for Ford since 1989, basically since he got out of college–he’s had every opportunity to become part of the ‘machine’; and yet, for some reason, he seems able to grasp the existence of a world outside Dearborn, a world where people don’t exactly wish Ford ill, but certainly won’t cut them slack because they feel sorry for the plight they’re in. Although there has been a massive (and important, and well executed) overhaul in product development and product quality initiatives; operational and engineering improvements can only go so far. It is vital that these systems be sound, and established, but to simply have sound product development strategy is not enough. Ford, in engineering this comeback, absolutely must change the way they are perceived by American consumers, and if one thing was clear from Fields’ remarks yesterday, it is that Change is coming to Dearborn. Posted in Home | No Comments » Back to the well January 4th, 2006 Soon to be visible to all the world, at least to the great unwashed mass of reporters, will be the Chrysler Imperial. It is a direct response to everyone who thought that the Chrysler 300 may have gone too far. Emboldened by the success of the 300, Chrysler has decided that perhaps it has not gone far enough. Ladies and gentlemen, I give you the Imperial: Whoops. That was another Chrysler excess. You can view the Imperial on the AutoWeek website It is more of everything that the 300 was, based on the assumption that you can never have too much of a good thing. Or even too much of a relatively good thing. Or even–dare it be mentioned–too much of a passing fad. As of yet no firm production plans are in the works; however, I would not be surprised to see this vehicle hit the market. Chrysler execs seem rather distressingly pleased with themselves and the success that the LX models have brought. Gone is the earlier emphasis on the 300 as a car that was intended to appeal to a broad spectrum of the buying public, one that would be as competitive at $23k as it is at $33k. Long gone is any public display of surprise that the 300 has been wildly popular with a fairly narrow segment of the population. Instead, we’re to believe Chrysler “planned” this all along. Oh well, it will be interesting to see what happens next. One thing is certain, Chrysler designers can only go to this well so many times before it runs dry. Posted in Home | No Comments » “Actual Mileage May Vary” January 2nd, 2006 The 2005 Toyota Avalon turned over to the EPA for highway and city mileage tests was fueled as per manfacturer specs, with regular gas. It’s rated at 22/31 city/highway. The 2005 Avalon is also rated at 280hp and 260lb-ft torque. On premium. Occasionally you’ll find that noted in the odd review or two, but for the most part, the 3.5L V6 in the Avalon is said to get 31mpg on the highway with 280hp. For 2006, the Avalon still boasts 31mpg on the highway but peak hp is now 268hp; peak torque is also down from 260lb-ft to 248lb-ft. You have heard that Toyota and Honda were playing games with their horsepower numbers (this was reported in the Detroit News in August), well, this is a little insight into how they did it. They had fuel economy measured with regular fuel, and they had power measured using premium fuel. This created either a healthy boost to power figures, or to economy figures, depending on your perspective. Moreover, it is very difficult to avoid crediting bad motives to Toyota. Why? Because the intent of the SAE methodology is to generate numbers that accurately reflect the real world. Now, if the owner’s manual (which is what the EPA tests are based on) recommends 87, then it seems logical to conclude that many if not most drivers will be using 87; hence the hp numbers should be derived from 87 octane gas. Apparently, until reined in by new SAE procedures, Toyota’s engineers exploited loopholes giving them flexibility on the fuel grade, among other things. By contrast, Ford (as well as GM and DaimlerChrysler) have policies regarding the dyno environment that aim to mimic real world conditions. Corporate honesty? In part, but also it’s due to a fear of lawsuits. Toyota, however, has been relatively immune to these things, and many of their corporate practices reflect this… —- Is this the first time that Toyota has played fast and loose with the truth? No. Let’s talk about hybrid fuel economy. From a Toyota press release June 22, 2004: The EPA tests are conducted in controlled laboratory conditions, at average speeds of no more than 48 mph, without air conditioning and at moderate temperatures. While this provides consistent and valid comparison data, it is widely accepted that most drivers of all types of vehicles experience lower results than the labels. Hmmpf. If the EPA’s highway numbers are generated at 48mph with no air-conditioning, it should be a wonder that any vehicle for sale in the United States can meet those numbers in real world conditions. Well, here’s what Toyota left out, from the EPA website: In the 1980s, an EPA study found that drivers were typically achieving lower fuel economy than predicted by EPA laboratory tests. As a result, EPA required the laboratory-derived city and highway MPG estimates posted on the labels of new vehicles to be adjusted downward by 10 percent for city estimates and by 22 percent for highway estimates to better reflect the MPG real-world drivers can expect. (emphasis added) Gee, it sure would’ve helped if Toyota had mentioned that the government adjusts the mpg numbers returned by their tests. But then, that wouldn’t've supported their case, would it? I am often disappointed with the quality of PR that is spun out by Ford, but it’s worth noting that rarely does Ford base marketing campaigns on duplicitous statistics, or on selective restatement of government policy. Posted in Home | No Comments » Define Durability December 20th, 2005 It’s days like today that must make editing a automotive magazine a pain. I mean, you’re supposed to announce the winner of the “Truck of the Year” contest, and what trucks are up for the award? The moderately updated Dodge Ram, the Honda Ridgeline, and three badge engineered variants of other models that shouldn’t even be in the contest. So what’re you gonna do? The Dodge Ram doesn’t have much in the way of new features. Just a stiffer frame and a bigger cab (on the crew cab models). Plus it looks a lot like the old Ram, except where it’s uglier (sorry, that’s a personal opinion). That leaves you with. The Ridgeline. Well, I guess if you’re an editor you do what you gotta do. You hold your nose. You give the award to the Ridgeline (which is being ignored by buyers in near record numbers), and you hope everyone forgets about this as quickly as possible. However, you probably shouldn’t laud the durability of a vehicle that blew out all four struts during routine off-roading on another publication’s long term test. That kind of comment just doesn’t help your credibility out at all. Posted in Home | No Comments » Green Oval December 8th, 2005 Ford Press Release Why don’t we hear more about this? And from a corporate standpoint, why aren’t we seeing more revenue from this? I’d like to know if part of Bill Ford’s “innovation” program includes developing the company’s environmental research unit into a profit generator. This is a business segment that isn’t going away any time soon, and I think Ford needs to be committed to drawing, recognizing, and rewarding the most talented engineers in the field of environmental management. They need to develop a talent resource that can generate profits through technology licensing, and even equipment servicing. Many companies are pursuing various recylcing and renewable/alternative energy projects not only because they’re required by law, or because such things are good corporate citizenship, but because they save money. My advice to Ford: “Mass Produce” cost-effective solutions to environmental challenges, and sell these to industrial companies worldwide. For instance, why not develop a “kit” for installing wind turbines on factory sites? Or offer consulting services to determine what sort of “green” solutions can be implemented at this site or that site? Why not start offering for hire the expertise that is being developed in house at Ford’s brownfields reclamation unit? (Never heard of Ford Land? Click here and here) Ford needs to develop alternative sources of income. As long as Ford’s automotive manufacturing relies heavily on NA and EU volume, and as long as NA and EU operations continue to have high fixed costs and a rising and falling cycle of demand for products, Ford will need other sources of revenue and profit to smooth out that cycle of profit and loss from the core NA and EU auto operations. Go ahead Bill. You’re an environmentalist, a business leader with convictions, and you want to leave a legacy at Ford that is distinctly your own. Well here’s my suggestion: make Ford Motor Company a world leader in solutions to industrial pollution. Posted in Home | No Comments » New Articles, Same Old Problems December 6th, 2005 David Welch has just posted an article to BusinessWeek.com (Click Here). [W]hen I climbed into the Mark LT’s swanky, cavernous cabin, I was impressed. Ford’s designers used some gorgeous dark red wood and splashes of chrome to glamorize something as utilitarian as a pickup. On the road, it’s as quiet as a country chapel and drives surprisingly smoothly. A week later, I tested the Zephyr sedan, which is also a very nice car. Its dashboard was decked out in light-colored wood and creme leather with attractive gauges that reminded me of Lincolns from the ’60s. You know what? I was going to post an analysis of this article, but that above quote sums it up pretty well. The writer liked the cars while he was in them, but afterwards talked to other people who convinced him that they weren’t that great. And that passes for journalism these days. Posted in Home | No Comments » From the Flint File: More Factoids November 30th, 2005 “Companies don’t downsize themselves to success.” IBM Payroll in 1990: 373k IBM Revenue in 1990: $69B IBM Profit in 1990: $6B IBM Revenue in 1993: $63B IBM Profit in 1993: -$8B IBM Payroll in 1994: 219k (Source: IBM) IBM Payroll in 2004: 329k IBM Revenue in 2004: $97B IBM Profit in 2004: $8B (Source: IBM) No, you can’t downsize your way to success. But sometimes it’s necessary to change your business model. I for one am tired of specious reasoning, hack phrases, and assertions of the obvious being passed of as sound business advice. Posted in Media Commentary | No Comments » « Previous Entries [ Next Thread | Previous Thread | Next Message | Previous Message ]