Following yet another month of rising vehicle sales for its brands in the US market, shares in Ford Motor Company hit an eight-year high on 15 November 2010. The firm expects its growing cash reserves to soon exceed net debt, a number of best selling models are soon to be replaced in key global markets, and several ratings agencies have hinted that a return to investment grade may be only one to two quarters away. So why does Ford’s current strategy not seem entirely convincing? In short, a vital piece of the puzzle is missing: the lack of a global premium vehicle division.
Ford would answer its critics by pointing out that the banks leaned heavily on it to divest itself of Volvo (and to sell down its holding in Mazda) and that it was anyway the right thing to do when the Ford brand needed management’s urgent, undivided attention. Prior to that, offloading first Aston Martin, then Jaguar and Land Rover also seemed like the sensible option. Alas for Ford, every one of those brands is now (claimed to be) profitable.
The Dearborn-based group has rightly earned its growing reputation as the comeback kid of 2010, but it’s well worth asking this question: if, as is well known, the Volkswagen Group makes most of its money from Audi, how high could Ford’s share price head if it had an equivalent luxury car division?
The company’s position on the future of its sole luxury brand appears to be straightforward: shrink the US Lincoln dealer network and give those that remain a few more products to sell, lifting their profits. Build up the brand where it already exists over the next three to five years, so goes Ford’s thinking, then perhaps expand into other markets.
The trouble with Ford’s current thinking is that even now, Lincoln is failing in some of the few places where it exists outside the US, Canada and Mexico. In South Korea, supposedly a closed market, Mercedes-Benz and BMW have each sold over 13,000 vehicles thus far in 2010, almost as many as SsangYong. Lincoln’s numbers are tiny by comparison.
Ford should follow the examples of Toyota and the Volkswagen Group: make Lincoln a proper, independent division and instruct managers to look at the world outside the luxury car markets of the US West and East coasts. Such executives already have many assets to work with in the form of models set for launch in 2011.
A forthcoming Lincoln rival (project C506: ‘MKR’) for the Audi Q5 is a good start, but in the US and China, much of the big money and volume continues to be made in the Cadillac SRX and Lexus ES segments. Lincoln would need a direct rival for the Audi A4 L in China and to launch a long wheelbase MKS there to take on the A6 L.
It is breathtaking to think that Ford continues to remain out of the Chinese premium vehicle market: just imagine the profits being made from the 192,000 Audis that were sold between January and the end of October, over 60% of them the locally-built A4 L and A6 L. And to those who say only the German brands and Lexus have cachet with Chinese buyers, consider that over 14,000 Cadillacs found buyers there in the first ten months of this year, over half of them the SRX Crossover, a high-priced import from Mexico.
The idea that Ford must for some reason wait until Lincoln pushes back above 100,000 sales in the US before it expands elsewhere, or that it needs bespoke products with which to enter new markets, is erroneous. Granted, the examples of Lexus, Cadillac and Infiniti prove that models which sell well in North America can flop in Western Europe. But with some Ralph Lauren-style American Luxury marketing and two-to-three existing models to start with in China, Russia and Brazil, Lincolns could soon become the more subtle, exclusive, elegant and pricier alternative to Cadillac. So what is Ford waiting for?
The opinions expressed here are those of the author and do not necessarily reflect the positions of Automotive World Ltd.
