Ford pins comeback hopes on Taurus
As Ford prepares to launch a highly anticipated update of its longtime flagship Taurus, the automaker is steadily gaining market share and benefiting from its position as the only U.S. automaker not on the federal dole.
With the exception of the Model T, perhaps no product has been more important to Ford than the original, 1986 Taurus, which helped revive the then-flagging automaker and demonstrated that a domestic manufacturer could take on even the best of the imports in the tough, midsize passenger car segment.
The new, 2010 Taurus won’t be a “make-it-or-break-it” car, as company insiders once described the ’86 model. But the automaker nonetheless sees the revival of the Taurus brand as critical to its comeback.
“This is the most significant entry we have,” among the various models being launched for the 2010 model year, Frank Davis, Ford’s executive director of product development said in an interview. “It is our flagship.”
After its original success, Ford seemed almost to grow tired of Taurus, letting the product line grow stale and non-competitive. But that was symptomatic of broader problems troubling the automaker. Quality had slipped during the late ’90s and into this decade, while Ford’s productivity, once at the top for the Big Three, was going nowhere. By the time Alan Mulally joined the company as its chief executive three years ago, there were serious questions about Ford’s long-term viability.
One of the former Boeing senior executive’s first moves was to mortgage the automaker’s assets, raising billions to ensure it could fund its operations in what was then looking like a moderate downturn in U.S. automotive demand. It was an unexpectedly prescient move, considering the depth of the actual recession, which pushed overall American sales down by about 47 percent from their peak early in the decade.
Significantly, that money permitted Ford to reject the federal bailout taken by its Big Three rivals and avoid a forced bankruptcy in order to clear its debt and reduce its costs.
Ford has cannily moved to take advantage of the crisis that crippled General Motors and Chrysler. It has already received billions of dollars of in-kind concessions from the United Auto Workers Union and is pushing the UAW for even more givebacks, including a no-strike clause.
Meanwhile, Ford has made sure the public is well aware that it isn’t on the public till, like its Detroit rivals. Many potential car buyers have shied away from GM and Chryler , and some have even called for a boycott of what critics, such as conservative radio host Hugh Hewitt, have dubbed “Government Motors.” In a June survey by the research firm AutoPacific, 43 percent of potential buyers said they were “Likely,” or “Very Likely” to consider a Ford product, matching the figures for Toyota. By contrast, only 15 percent said the same for GM, and 7 percent for Chrysler.
“Ford’s restructuring, which started months before the current economic downturn, has clearly helped position it more closely with its Asian and European rivals than its domestic competitors, in terms of public perception,” said AutoPacific President George Peterson.
In real terms, that’s translating into small but nonetheless significant increases in Ford’s U.S. retail market share, which jumped to 16.4 percent during the second quarter, a two point gain. In Canada, Ford is now the number one brand for the first time in 50 years.
Skipping the bailout isn’t the only factor working to enhance Ford’s public image. The automaker has steadily improved its quality over the last several years, after embarrassing setbacks earlier in the decade that seemed to belie its long-time slogan, “Quality is Job One.”
Ford and its Mercury division were two of four domestic brands to score above average in the 2009 J.D. Power Initial Quality Survey, which measures how many problems buyers experience with their new vehicles 90 days after purchase. Various Ford products, like the redesigned F-150 pickup, captured top honors in four individual product segments, more than any other maker but perennial quality king Toyota.
Another hopeful sign came with the announcement of Ford’s second-quarter earnings, on July 23. The automaker reported an unexpectedly strong profit of $2.3 billion. That reflected a number of one-time gains, but even its actual operating loss of $424 million was $609 million better than the second quarter of 2008, prior to the auto industry’s gas price and recession-driven meltdown.
Among other things, Ford was able to shed more than $10 billion in debt during the most recent quarter, which will reduce its still-hefty interest payments by $500 million annually.
That’s not to say the automaker is out of the woods, as even Mulally admitted this past week.
“Clearly, the road ahead remains challenging. The recovery is likely to be more modest than many of us had hoped,” he said during a media conference to discuss Ford’s results.
To be sure, the coming months will depend on a variety of factors, notably including new products like the ’10 Taurus. While that sedan could do a lot to burnish Ford’s image, it is expected to have only a modest impact on sales. Full-size (rather than midsize, like the ’86), sources say volume is likely to only reach between 50,000 and 70,000 units annually, compared to the original sedan, which once kept two plants busy rolling out more than 500,000 a year.
Two new small cars will come on line soon, including a global version of the Focus compact and an American edition of the Fiesta, one of the strongest subcompacts in the downsized European market. But while conventional wisdom might suggest the timing is good, market data actually show that small car sales have sagged significantly since the end of the ’08 gas price run-up. On the other hand, another big jump at the pump could again hurt sales of Ford products like the F-150 and Explorer SUV.
Ford has other issues to contend with. It still has more debt than its restructured domestic rivals, and it has yet to win those sought-after new union concessions.
Nonetheless, a “turnaround (is) underway,” writes Rod Lache, automotive analyst with Deutsche Bank. While Lache cautions that the one-time savings that buoyed the second quarter are “unsustainable,” he and other analysts agree, there’s little doubt that Ford is, at least for now, the strongest and best-positioned of Detroit’s struggling Big Three.