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Ford’s Evolving Green Strategy Needs More Action

31 October 2004

Detroit News columnist Daniel Howes outlines Ford’s coalescing strategy “to become a legitimate contender in the race with Toyota and Honda for global leadership in alternative technology.”

Ford is pushing to boost the production of its escape Hybrid SUV. This year’s current production of 4,000 vehicles is already sold out, and the 20,000 promised for next year look like they will go very quickly.

Armed with such evident customer demand, engineers want to triple annual production to as much as 60,000—something Ford would like to announce at January’s Detroit auto show but won’t if it isn’t sure it can deliver. Ford would push production higher if it could, but it is constrained mostly by the inability of key suppliers to fulfill growing demand for specialized components.

Sanyo—with the constrained supplies of its batteries for the Escape hybrid—is a prime example of that last item. The inclination to produce 60,000 is, of course, very good. One of the Ford’s problems is its lagging perception of the market. The Escape Hybrid has been in the works for years, and its launch delayed multiple times. At the same time, Toyota and Honda had not only identified the market need, but had build a network of internal capabilities and suppliers to allow them to scale more gracefully as demand increased. The point about constrained supplies is a valid one—it’s just not the position a visionary industry leader takes.

There are a couple of basic approaches a major company can take to fundamental market and technology shifts. One is to hang back a bit, see what wins in the market, and then buy the leaders. (Call that the ExxonMobil strategy. That company can buy its way into whatever it needs to.) Another is to invest heavily in R, but also in real D—i.e., build new products with your new technology, and build the supply chain and other supporting infrastructure elements to make sure they can succeed in the market.

Ford identified the abstract need, but didn’t aggressively and thoroughly carry through on the vision.

Second, Ford’s hybrid strategy isn’t limited to the Escape, its Mercury-brand cousin and the coming Ford Fusion midsize car. With Toyota poised to launch a hybrid-powered Lexus RX 400h and Toyota Highlander and with Honda offering a hybrid Accord, Ford is seriously examining the possibility of responding with hybrid versions of its new Five Hundred sedan and Freestyle wagon.

Seriously considering”? With cars yielding an ever decreasing percentage of its business, Ford should have the pedal mashed to the floor trying to substantively differentiate its lines—accelerating the implementation of hybrid technologies seems like one very good way to do so.

That means Ford, widely denounced for fielding a fleet of vehicles with what some environmental activists call “the worst” fuel economy in the U.S. market, could potentially be building as many as 200,000 hybrids vehicle [sic] within four years or so.

Hmm, let’s see. If Ford builds 200,000 hybrids in 2009, and Toyota builds 300,000 in 2005 (earlier post)...

Third, Ford is developing a long-term strategy to dramatically cut emissions from its cars and trucks, a move designed to craft a competitive advantage from a regulatory burden. Whatever those targets end up being, for now it’s unlikely Ford would publicly announce them until it’s at least halfway there.

That would indeed be a competitive advantage—and a leadership stance. It also is doable—as the CARB technical analysis surrounding the climate change bill in California has outlined. What it requires is an automaker to step up to it. To set an aggressive goal, announce it publicly, and stop the rearguard legal and lobbying battles that have characterized many of the interactions between environmental regulators and the auto companies. If Ford is truly signing up to a worthwhile goal, it should leverage the work now, and be a leader.

Fourth, Ford is using its hybrid vehicle programs as a technological bridge to hydrogen vehicles. The first step is hydrogen-powered internal combustion engines, such as the shuttle buses Ford will operate at airports. The second step would be hydrogen fuel-cell vehicles, generally considered to be at least 15 years away.

Underpinning Ford’s unfolding strategy are several assumptions: that gasoline prices are likely to remain comparatively high for some time to come; that more consumers accordingly will seek alternative-technology vehicles; that the companies who offer them will have a competitive and public perception advantage over those who don't; that the process of developing such vehicles will build a cadre of institutional expertise which Ford can use to mold its future.

Reading this, particularly that last paragraph, reminds me of the beginning of the end for the major minicomputer vendors in the 1980s. As a quick tech history refresh: PCs came roaring onto the market as a major phenomenon in the early-mid 1980s. At that time, there was an established group of mainframe and minicomputer vendors dominating the computer market—and almost uniformly (IBM being the notable exception, because it took the leadership position in PCs) they missed the importance of the market shift. Too late, they embraced the PC market philosophy, tried to get into the business, and failed. Most are now gone...and it happened very quickly.

The strategic tenets of that final paragraph are obvious—understated, even. It’s not a question of who recognizes this, but a question of who leads the market through execution. Toyota and Honda are doing it. DaimlerChrylser has potential with its diesel/biofuels emphasis. GM is tuning up a more aggressive approach to hybrids (heaviest vehicles first). Where does that leave Ford? With sound thinking, but insufficient delivery?

I would like to see Ford succeed. Aggressive green competition between automakers will advance the state of the market faster than anything. (You’s starting to see that in the responses to Toyota.) But doing so will require more than great engineering...which I believe Ford has. It requires strategic leadership. Toyota is a clear example. GM’s new relationship with SAIC on developing hybrids and fuel cell vehicles in China is also a good example. It embraces all the necessary elements: developing the technology, developing the infrastructure, developing the market (earlier post).

Ford needs leadership action as well as leadership thoughts.

October 31, 2004 in Market Background, Vehicle Manufacturers | Permalink | Comments (2) | TrackBack (2)

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Comments

Great article! Edwin rocks

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