COLOGNE, Germany - Ford of Europe is betting $800 million that it can make small cars people want, and do it profitably.
It's a goal that has proven elusive for Ford and other carmakers, because small cars often mean small profits.
Ford is spending $500 million to install a factory within a factory at its old Cologne works. Ford is investing $300 million to upgrade its Valencia, Spain, factory. That doesn't include $175 million suppliers and developers are spending on a new supplier park in Cologne.
Ford will make versions of the new Fiesta supermini at both factories. Cologne will take the lead with two five-door derivatives, one of which will be a so-called multiple-activity vehicle. Valencia will follow with a three-door Fiesta in 2003.
Ford of Europe CEO David Thursfield expects volume of the Fiesta to be about 405,000 units at Cologne in 2002, the first full year of production. Job 1 is set for Nov. 30.
Using new lean and flexible production techniques, Ford hopes to reduce assembly time from 22 hours for the current Fiesta to 16.5 hours for the new model.
'We've got to get over the fact that we let our production (of the current Fiesta) go on for so long,' Thursfield said.
Ford allowed the Fiesta to age badly against modern models such as the Peugeot 206 and Fiat Punto.
'The challenge will be to grow our market share,' Thursfield said.
Valencia added to mix
Thursfield said Ford could get back to the 12 percent share of the European market it had in 1994-95. Ford had a 9.1 percent share through the first six months this year.
'There's no glass ceiling,' Thursfield said.
The 12 percent is not a particular goal, he added, and Ford's European operations could still be profitable with smaller market share.
By increasing production at Cologne and putting Valencia into the Fiesta mix, Ford will compensate for the production that will be lost when it stops building the current Fiesta at Dagenham, England, at the end of the year.
To make a variety of Fiesta derivatives but keep costs down, Ford will use new production techniques it has not previously employed in a single factory.
The 4,000-person Cologne work force will be divided into six-person teams, each responsible for a portion of the Fiesta's production.
German supplier Eisenmann will be paid for each Fiesta built on assembly lines it is installing at Cologne. Eisenmann manufactures assembly line and conveyor equipment.
This is the first time Ford has used a pay-on-production plan in the final assembly hall. Eisenmann also will operate and maintain the conveyor system that links the supplier park to the assembly line.
In the body shop, Ford will lease robots and other automation equipment from suppliers Comau and Kuka in what Ford says is another first. Comau and Kuka will maintain the equipment.
The plan means Ford will not have to invest millions in new robots and machine tooling, said Bruce Swift, Ford of Europe vice president of purchasing.
Swift said the contracts will help Ford develop long-term relationships with the equipment suppliers.
'How do you have true partnerships with suppliers,' Swift said. 'One of the ways is to have real interlocking relationships by having shared equipment ownership.
'That builds that relationship, rather than having this transactional business model.'
Twelve component suppliers in the new Cologne supplier park also will get paid in increments with each completed Fiesta.
Ford has used pay-on-production arrangements with module suppliers for several years at its plants in Saarlouis, Germany, which builds the Focus, and Valencia, which builds the Focus and Ka.
The Cologne supplier park, adjacent to the factory, will feed completed modules into the factory floor in sequence. For the new Fiesta, Ford is giving more responsibility to suppliers than before.
Changing on the fly
A German company, Ferrostahl Industrie, will dress and assemble engines and combine them with transmissions, front ends and exhaust systems.
It will put them on the conveyor for the trip into the final assembly hall. Ford calls the engine modules pony packs.
E-business tools will link Ford dealers into the production system and allow them to identify cars to be built to customer specifications.
Changes can be made in customer orders up to six days before production, said Gerhard Meise, head of order fulfillment and team logistics at Cologne.
'Flexibility allows us to be able to plan with confidence,' said John Fleming, Ford's European manufacturing chief.
'I've been very impressed with what Ford is doing,' said Jim Collins, automotive analyst for the London office of the UBS-Warburg securities firm. 'But the problem from our side is when it's going to show up on the bottom line.'
The secret to making flexible manufacturing profitable, Collins said, is to make five or six variants of a car on the same line, as Toyota and Honda have done in Japan.