Ford Motor Co. is counting on aggressive growth in its luxury vehicle sales to generate hefty profits in the next few years.
In addition to the mainstream Ford and Mercury divisions, Ford has five luxury brands in its Premier Automotive Group: Lincoln, Volvo, Jaguar, Land Rover and Aston Martin. Ford also owns a controlling interest in Mazda, which shares vehicles with Ford and Mercury.
Ford says the PAG lineup gives it the strongest portfolio of luxury brands in the industry, but it also means the second-largest automaker has to create novel models and distinct identities for each so they don’t compete for the same buyers.
Auto analyst Maryann Keller sees Ford suffering the same headaches as General Motors, which has struggled for years to find the right mix of products and positioning for its nine brands.
“The problem Ford has created for itself is that it has not rehabilitated the existing brands and now has to create a unique market position for the brands it has acquired,” Keller said. “Why should this be any different than GM trying to create distinct markets for all of its brands?”
Ford, which lost $5.45 billion in 2001–the company’s first loss in nine years– recently announced a massive restructuring that includes cutting 35,000 jobs worldwide and closing five North American plants.
In addition to the deep cost cuts, Ford said it would introduce 34 new and redesigned vehicles in the next three years that will help it return to profitability.
The luxury brands are expected to do most of the heavy lifting, getting 24 of the new models. Ford projects that by 2005 PAG will generate 35 percent of its global profits, nearly triple the present 13 percent.
PAG brands sold 356,000 vehicles in the U.S. last year, and Ford did not say how much sales growth or market share it expects. However, the company expects the Ford division, its traditional breadwinner, to maintain 19 percent of the market in the next few years, putting a greater burden on PAG. The Ford division sold 3.3 million vehicles last year.
Keller is skeptical, saying aggressive expansion plans will force the PAG brands to chase the same buyers.
“Every one of those brands has grand ambitions for getting bigger, and not just in their own little niche,” Keller said. “When they do, they will start to tread on each others’ toes. It’s inevitable.”
Volvo’s niche is safety, Land Rover’s is sport-utility vehicles that are posh but designed for rugged off-road use and Jaguar’s is elegance and sporty performance. (Aston Martin is a boutique brand that hand-builds sports cars priced at $150,000 and up. )
Keller wonders: “How big can these niche brands get before they lose the specialization that attracted such a loyal owner base?”
By staying in their traditional niches, neither Volvo, Land Rover nor Jaguar will have a lineup broad enough to compete with rivals such as Mercedes-Benz, BMW or Lexus, which provide one-stop shopping by offering SUVs, sedans, wagons, sporty coupes and convertibles in one showroom.
“Those brands have always been rather narrow in their focus,” Ford spokesman Simon Sproule said of Jaguar and Land Rover, “and they will continue to be. Land Rover is not getting into the sports car business.” Land Rover’s previous owner, Rover Group, lost money on its car brands, which Ford did not buy.
About 30 percent of the 140 Jaguar dealers also sell Land Rover, and Sproule said the two are a natural pairing. More are expected to combine, though there is no plan to accomplish that.
Sproule said sales of those two brands should grow to around 100,000 this year, from 72,000 last year, mainly because of new, lower-priced models, the Land Rover Freelander, which starts at $25,000, and the Jaguar X-Type, which starts at $30,000.
Other new models on the way are a redesigned Range Rover, a $70,000 SUV, and a two-door Freelander. Jaguar will freshen the S-Type sedan for 2003 and introduce a redesigned XJ sedan late this year. The F-Type, a two-seat roadster, is planned for 2004.
Keller says Ford’s luxury brands are trying to grab bigger chunks of existing markets, not create new ones, and are fighting well-established competitors that have strong dealer networks and loyal customers.
“The competition has lots of products coming, too,” she said. “Lexus is not going to sleep for the next five years.”
Lincoln is the only broad-based PAG brand, offering sedans, SUVs and the Blackwood, a cross between an SUV and a pickup, but its sales are going downhill.
After becoming the top-selling luxury brand in 1998, Lincoln fell to sixth last year behind Cadillac (fourth place) and four import brands (Lexus, Mercedes, BMW and Acura). U.S. sales dropped 18 percent, to 159,000 vehicles.
Lincoln loses the Continental at the end of the 2002 model year, but the Town Car and Navigator SUV receive cosmetic and mechanical updates this spring. Lincoln will add the Aviator SUV in the summer, a luxury version of the Ford Explorer.
Lincoln dealers have been begging for a convertible or coupe as a signature model, and though Ford has not announced plans for such a car, one is widely expected.
Cadillac, which also has been losing sales, has a product offensive of its own. The 2003 CTS sedan went on sale in January, and the XLR roadster and SRX car-SUV crossover vehicle are due for the 2004 model year.
In announcing Ford’s restructuring plan, President and Chief Operating Officer Nick Scheele said the PAG marques “will remain five totally unique brands but share components,” indicating Ford will expand a current practice.
The Lincoln LS, for example, uses the same platform (or basic architecture) and other major components as the Jaguar S-Type sedan, though the two look different. This reduces development costs by spreading the engineering expense across two or more models and generates higher return on the investment because the hardware that buyers don’t see is shared.
“We’re looking to do more of that in the future,” Sproule said. “Why have five different air-conditioning compressors when the only areas that matter are what the customer sees and uses? The air-conditioning button is the only part that needs to be unique.”
In the PAG stable, the 2005 Volvo S40 sedan and V40 wagon are likely to share their platform and major components with the Ford Focus and Mazda Protege, according to industry analysts. The S40 and V40 were developed with Mitsubishi in an arrangement made before Ford acquired Volvo in 1999.
Sharing platforms and other components can have pitfalls.
Ford may have sown the seeds for the Continental’s demise in 1988. That is when it switched from rear-wheel-drive to a stretched version of the Taurus’s front-wheel-drive platform and a V-6 engine used in the Taurus, the first Lincoln with fewer than 8 cylinders. The Continental regained a V-8 when it was redesigned in 1995 but never regained its stature with buyers.
More recently, Jaguar caught flak from the media and loyalists over the X-Type, its entry model. The X-Type is based on the front-wheel-drive European Ford Mondeo, a midsize family car, uses Ford engines and resembles the Mondeo from the rear. The previous Mondeo was sold in the U.S. as the Ford Contour and Mercury Mystique.
When Ford proposed the X-Type as a FWD sedan, Jaguar insiders balked because Jaguars always have had rear-wheel-drive. Ford’s concession was to give the X-Type all-wheel-drive.
Sproule responds that only 18 percent of X-Type parts are shared with the Mondeo.
“There’s probably not a model on the marketplace that has 100 percent unique parts. That’s simply not cost effective,” he said.
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Ford sold 3,962,661 vehicles in 2001 through its Ford, Mercury, Lincoln, Volvo, Jaguar, Land Rover and Aston Martin brands. The Ford brand accounted for the lion’s share, 83.1 percent, of those sales. Lincoln, Volvo, Jaguar, Land Rover and Aston Martin make up Ford’s Premier Automotive Group, which the company is counting on to carve out a larger stake in the luxury market. Right now, each brand accounts for less than 5 percent of Ford Motor Co.’s overall business.
Lincoln accounts for 4 percent of Ford sales
Volvo accounts for 3.2 percent of sales
Jaguar accounts for 1.1 percent of sales
Land Rover accounts for 0.7 percent of sales
High-end market
Here is how the (-) Premiere Automotive Group brands stack up to other luxury brands in numbers of cars sold in the U.S. in 2001:
Lexus: 223,983
BMW: 213,127
Mercedes: 206,638
Cadillac: 172,083
Acura: 170,469
– Lincoln: 158,934
– Volvo: 125,673
Audi: 83,283
Infiniti: 71,365
– Jaguar: 44,532
Saab: 37,557
– Land Rover: 27,204
Porsche: 23,041
Hummer: 768
Rolls-Royce/Bentley: 752
– Aston Martin: 341
Source: Automotive News; Simon Sproule, Ford public relations
