Ford sticks with small-car plans

Mulally banks on strategy despite F-150 marketing blitz

Mulally: Even with cheaper pump prices, Ford won’t veer from its plan to produce smaller, fuel-efficient vehicles.
DETROIT — A funny thing happened on the way to the Ford F-150 pickup launch.

Last summer, Ford Motor Co. delayed the debut of the re-engineered '09 model after gasoline topped $4 a gallon. Next, Ford gave up on National Football League ads. Then gasoline prices dropped, and the sell-down of 2008 models went better than Ford expected.

Industry sales of full-sized pickups were down a whopping 26.7 percent in September. But this past weekend, football watchers saw the first salvo of a barrage of commercials for the 2009 F-150.

Lower gasoline prices may create a better launch environment for the F-150, but they present a problem for Ford, too. Ford is betting that a wave of European-designed small cars will lead its turnaround.

So will the drop in gasoline prices cause Ford to rethink its small-car onslaught? Not at all, says CEO Alan Mulally.

Fuel "prices are going to stay relatively higher, even though they're down right now," Mulally told Automotive News last week.

"The most important thing we can do is have a full complement of small and medium-sized cars and utilities that complement our larger vehicles."

Five questions with

Ford CEO Alan Mulally

Ford's CEO tells Automotive News Editor David Sedgwick that the automaker will likely apply for a government loan this year, the European Ka might be available in the United States, and bankruptcy is not an option.
5 Questions with Alan Mulally, CEO of Ford Motor Co.
Ford last week released this photo of the 2010 Fusion Sport, part of CEO Alan Mulally’s car strategy.

Think small

His priority now is to launch the subcompact Ford Fiesta in North America in 2010, Mulally said. An array of subcompact, or B-segment, and Focus-sized compact cars will follow.

Mulally said he even might bring the Ford Ka microcar to the United States. A redesigned Ka, which is smaller than the Fiesta, goes on sale in Europe early next year. Mulally said he hasn't set a deadline for his decision on a U.S. Ka.

Ford is even more committed to its small-car strategy than when it adjusted production in July, Mulally said. Company leaders think customers will demand fuel efficiency in their vehicles.

"It will be really interesting to see how far down we go in size," Mulally said.

But the Ford CEO must find a way to achieve a decent profit margin on small cars. It will be tough to replace the $8,000 to $10,000-plus profit margins on big pickups and SUVs.

"It takes a while to fill in that loss of revenue on the larger vehicles with the full portfolio of cars," Mulally said. "But over time, our plan is to make money on them and make a reasonable return."

Lean times

That's critical. Through September, Ford's U.S. light-vehicle sales were down 18.4 percent. Through June 30, the automaker lost $8.6 billion. Ford will announce third-quarter results Friday; more losses are expected.

While generally viewed to be in better shape than General Motors or Chrysler LLC, Ford is burning cash. It had $26.6 billion in cash at the end of June, down $8 billion during the first six months of 2008. Ford can tap an additional $11.6 billion in credit lines.

Mulally doesn't foresee industry sales rebounding in 2009, and he won't say when Ford will return to profitability.

But with his cash cushion, Mulally is betting Ford can make it through the downturn as an independent company. This year, Ford rejected merger overtures from GM and Chrysler. Mulally said he remains focused on integrating Ford's global operations.

He explained: The "most important merger that we (can) do is inside Ford." 

You can reach Amy Wilson at awilson@crain.com

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