Fields: Must repair PAG's finances
Ford Motor Co.'s British luxury brand is bleeding, and Mark Fields is under growing pressure to halt it.
It's a crucial test for the 43-year-old, who many think will lead Ford Motor Co. some day. Fields, head of European operations and the Premier Automotive Group, has to fix the luxury division's finances if he is to get to the next level.
Some at Ford question whether Fields has done enough.
PAG's Jaguar unit produced only 125,000 cars in its three United Kingdom plants last year. It doesn't need that many factories. German rivals Audi, BMW and Mercedes-Benz each build more cars at a single plant than Jaguar does in three.
"Fields has been in that job two years," says a senior company executive. "Jaguar has had too much capacity the whole time. At some point you can't help but say: Who's responsible?"
Fields took over the Premier Automotive Group in July 2002 after achieving success as CEO of Mazda, Ford's Japanese affiliate. He added responsibility for Ford of Europe this year.
But Jaguar is his biggest headache. Fields may have to close a plant even though Ford keeps saying it won't happen.
Senior Ford executives in Detroit and Europe plan a review in the next couple of months. The job of turning the business around falls to Fields; Joe Greenwell, CEO of Jaguar-Land Rover; and Bibiana Boerio, recently named managing director of Jaguar.
PAG stunned investors by losing $360 million in the second quarter. Ford had projected 2004 profits of $500 million to $600 million for the luxury group, which also includes Volvo, Land Rover and Aston Martin.
Don Leclair, Ford's CFO, says PAG will be lucky to break even this year. He pinned the problems mainly on Jaguar.
Ford had hoped PAG would account for 30 percent of the corporation's global profits by mid-decade.
"We're going to have to evaluate the Jaguar business structure," said Leclair. "We're not done, but I can tell you it's a high priority."
Leclair said the restructuring will not be radical. But company sources say nothing is off limits, including closing one of the three plants in the long term.
"You can't have three plants in this day and age building 120,000 units a year," said the executive. "There's no point in the world in Jaguar having three assembly plants."
Yet cutting capacity won't be easy. Jaguar is committed to the three-plant strategy for now. The company has promised workers that the next-generation XK sports car, due in 2006, will be built at Browns Lane, England, Jaguar's spiritual home and headquarters. The new aluminum XJ sedan is also built there. The S-Type is produced at Castle Bromwich in Birmingham, England, and the X-Type is built at Halewood, near Liverpool.
The aluminum-bodied XJ is Jaguar's top-of-the-line vehicle.
The move saved Nasser from having to choose between closing both of Ford's United Kingdom assembly plants - Halewood and Dagenham - simultaneously. But it saddled Jaguar with a third factory. The next-generation Land Rover Freelander will also be made at Halewood.
Jaguar has not been profitable since Ford bought it in 1989.
"To an outsider, the economics of it just look terrible," says Max Warburton, executive director of global investment research at Goldman Sachs in London.
"It's damn difficult competing with the Germans in this area when volumes of the (BMW) 3 series and Audi A4 are just so huge.
"Their pricing points are far superior to what Jaguar is achieving and the resources at their disposal are much greater.
Warburton also says Jaguar has "found it incredibly difficult to recruit and hold onto the right type of engineering staff.
"It's not easy doing business in the U.K. if you want to be at the pinnacle of technology," he says. "The diesel front-wheel-drive X-Type is not at the pinnacle of automotive technology. Its price points reflect that."
Neither has Jaguar been helped by the fact that it sells 45 percent of its cars in the United States, where the dollar has foundered against the British pound.
Not much commonality
Jaguar's lineup is a patchwork of cars. The top of the line XJ is an aluminum-bodied car with a longitudinally mounted engine.
The X-Type, Jaguar's smallest car, has a steel body and transverse-mounted engine. It is derived from the Ford Mondeo, while the middle car, the S-Type, shared a platform with the Lincoln LS. None of the cars share platforms with other PAG products.
"There's not much commonality in Jaguar," says Warburton.
Jaguar will struggle turn a profit making aluminum-bodied cars, he says. "I challenge anyone to find a profitable aluminum car in the history of the industry."
Ford has made headway at Ford of Europe, where losses had been piling up until recently. But short of closing plants, Fields and company appear to have few options at Jaguar.
"I don't think there will be the kinds of things we saw from Ford of Europe where there were areas we could make significant cost reductions with a payback within nine months," says Leclair.
"I think there will be things that will be a little more subtle and take a little longer to work through."