It has been nearly three years since Ford Motor Co. created the Premier Automotive Group for Wolfgang Reitzle to run. That's an eternity for a money-losing company that relies on quarterly earnings statements.
What has Ford's luxury-car division proven so far? Have purchasing commonalities and product development synergies fallen into place? Or are the PAG brands colliding as each marque chases hot market segments?
The latest drama is the departure of the hard-charging, 53-year-old _Reitzle - replaced by Mazda President Mark Fields, 41.
Reitzle's leaving comes at a crucial time for PAG, which consists of Volvo, Jaguar, Land Rover, Aston Martin and Lincoln.
Ford is relying heavily on PAG profits. In 2000, Ford Motor posted pretax income of $8.2 billion (E9.2 billion), of which PAG accounted for 20 percent, or $1.64 billion. In 2005, Ford Motor expects pretax income of $7 billion, of which PAG is to account for 33 percent, or $2.31 billion. That's a 40.8 percent increase in pretax income needed from PAG.
Reitzle's departure also comes as Ford's luxury carmakers try to collaborate on purchasing and development, while not overlapping in branding and product.
'We can't afford to lose [Reitzle],' a PAG manager said. 'It's fascinating what a difference he made at the brands. The attention he gives to the smallest detail, his engineering experience and his understanding of customer tastes and market trends makes all the difference.'
Just as Ford looks to fill a huge gap in product development, this event could upset an already delicate balance at headquarters in Dearborn. Fields has been admired for his work in turning around Mazda. But some in the Ford camp feel that whoever replaces Reitzle will not have his dynamism and product savvy.
'For Jaguar and Aston Martin [Reitzle leaving] is a catastrophe,' the PAG executive said. 'Cars like the S-type with a six-speed gearbox wouldn't exist without Reitzle. Now the Ford [finance] guys will start saving at every single nut and bolt again. And the Jaguar spirit, so credibly reinstated by Reitzle, will fade again.'
Reitzle will join Linde AG, a German manufacturing firm, in May. Fields will remain in Japan until June.
Here is a report card on Premier Automotive Group's progress:
Because the product cycles have not lined up yet, there is little in the way of purchasing that has been commonized. But back-office operations, such as logistics, part supply, distribution and administration, have been combined.
In the broader product development and manufacturing sense, Land Rover, Jaguar and Aston-Martin are working closely on similar procurement plans, although supplier commonality won't really happen until next-generation redesigns occur, said Steve Jones, Land Rover/Jaguar purchasing director. The same holds true for Volvo and Ford of Europe.
The biggest overlap could involve sharing of powerplants, such as Land Rover using Jaguar's next-generation V-8 engine in its upcoming Discovery, and Jaguar borrowing diesel engine technology from Ford of Europe.
Volvo will share major component sets with Ford of Europe on the future 40- and 30-series vehicles.
'You don't just get wholesale re-sourcing and change your supplier base. But we are seeing an evolution with our new model programs. Over time, we'll see a gradual convergence if the suppliers can deliver the needs of our technology,' Jones said.
Of more importance is PAG's use of similar electrical architectures, such as the software that controls throttle, braking and suspension systems. A common software system would make it easier to tune a similarly-designed suspension to handle much differently in a Jaguar than in a Volvo.
Eric Noble, president of The Car Lab consultancy in Santa Ana, California, said: 'From a resource standpoint, the brands have access to a larger component set, and that should make products more efficient to plan and to tailor. But if it becomes platform sharing, there is a danger if it becomes noticeable to consumers.'
But the slowness of the product-launch cadence has some analysts thinking PAG is not moving fast enough.
Said Steve Saxty, analyst with FutureBrand in New York: 'Ford has failed to produce statistical evidence that brand value has been increased with PAG.'
The Premier Group has ambitious sales volume targets. Volvo plans to grow from 450,000 units annually to 600,000. Jaguar is to grow from 50,000 units to 200,000. Land Rover counts on sales growing from the 160,000 range to 200,000 units.
So far, the progress is mixed. Volvo sales were static last year and are flat through March. Volvo expects new models such as the redesigned 40-series, XC90 sport-utility and 30-series supermini coming in the next three years to boost its sales considerably.
Jaguar sales jumped 10 percent in 2001 and are up sharply again in 2002, mostly due to the launch of the X-type. Land Rover sales were off slightly last year, and could drop again this year, according to projections from the Automotive News Data Center and J.D. Power and Associates (see table).
On the retail front, Reitzle's plan to combine the PAG brands under the same dealership roof appears to have stalled. American dealers are leery of investing the projected $25 million cost for such a project, and European dealers are not making any investments due to uncertainty regarding block exemption.
Said Saxty: 'Reitzle failed to realize that one cannot dictate a concept to local sales companies that have good reasons to retain their single franchised dealer networks. The BMW theories, such as he planned for BMW, MG and Land Rover, don't apply when dealers are less loyal to the brand.'
But Mark Fulthorpe, analyst with CSM Worldwide in Byfleet, England, disagrees: 'PAG has given Ford good long-term prospects. It's the ideal way to handle the wider consumer trend to move out of volume brands and go upscale, as well as luxury brands going downscale - even if it comes at sacrificing some Blue Oval sales.'
Reitzle has given close focus to PAG product development, but some of Ford's goals have run counter to his mission for PAG.
Analysts worry that PAG's sales growth will force the brands to enter segments that are unfamiliar and could overlap with other PAG marques.
For example, Jaguar went into the entry-luxury market with the X-type, then moved further downmarket with a company-fleet model with front-wheel drive. And though PAG officials say the cars would attract different buyers, analysts wonder about the wisdom of offering a future Jaguar wagon for the price of a Volvo.
Also, insiders say there is no way Volvo would have been allowed to bring out the XC90 sport-utility vehicle - due to overlaps with Land Rover - were the XC90 not so far along in development when Ford acquired Volvo.
PAG officials defend the brand strategy. They say there is no way to keep the five marques entirely separate. They say that any overlap is small enough that few customers will notice the similarities between products. But they concede that Reitzle is the key man in knowing how to differentiate the products across the brands.
'All those people at PAG still believe that you can differentiate by brand, even for products in the same segment - that's still the gospel over there,' Noble said.
Ford's finance executives have made deep cuts in the future platform strategy, counting on sophisticated marketing to differentiate the brands. The next Jaguar S-type, which was to have been developed with the next Lincoln LS on a somewhat separate platform, will now come from a Ford Division mass-market large-car platform.
Reitzle was also furious at Ford's decision to kill projects such as the D2C platform, which was supposed to form the basis of Ford's BMW
3-series fighter, insiders say.
But of as much importance to the brand is the buyers themselves, Noble said. By stretching product offerings downmarket in search for volume, PAG is attracting customers with lower incomes than before.
'Jaguar is bringing in a bunch of people who wouldn't be Jag owners demographically or psychographically. Even if the X-type is a strong product, it degrades the brand not because of the product but because of the buyer,' Noble said.
In the wake
With Reitzle gone, some changes are already under way at PAG. Lincoln and Mercury will be folded back inside Ford's North American Operations, leaving PAG solely a house of European luxury brands.
Some inside Ford worry that other key executives could follow Reitzle. Already thinned at the top ranks in the post-Jac Nasser purges, Ford could lose Reitzle loyalists disillusioned by his departure.
PAG's US headquarters in Irvine, California, could come under scrutiny by finance executives, a source said.
The Irvine office was one of Reitzle's causes, pushed through with Nasser's approval.
The same goes for PAG's posh Berkeley Square headquarters in London. With the product planning and r&d sides of PAG combining in Gaydon in the British midlands, a source said PAG has been looking at sites in Warwickshire for a more modest headquarters.
- Dorothee Ostle and Mary Connelly contributed to this report