Ford Accelerates Small Car Transition in North America

24 July 2008

Second quarter operating results. In contrast to the losses in North America, Ford operations in Europe and South America were strong. Click to enlarge.

In the context of a just-announced $1.3-billion second-quarter operating loss for its North America operations, Ford Motor Company announced a significant acceleration of its transformation plan with the addition of new fuel-efficient small vehicles in North America and a realignment of its North American manufacturing away from trucks and SUVs to smaller cars and crossovers.

Under the “One Ford” plan, more than 40% of Ford’s North American entries in global segments (B, C, C/D and Commercial Van) will be shared with Ford of Europe by 2010, with 100% alignment achieved by 2013, according to Mark Fields, Ford Executive Vice President and President of the Americas.

While we have no intention of giving up our longtime truck leadership, we are creating a new Ford in North America on a foundation of small, fuel-efficient cars and crossovers that will set new standards for quality, fuel economy, product features and refinement.

—Mark Fields

The Ford, Lincoln, Mercury line in North America will be almost completely upgraded by the end of 2010. The new products for North American include six European small vehicles:

• New European Transit Connect small multi-purpose van in mid-2009.

• New European Ford Fiesta, in both four- and five-door versions, in early 2010.

• New European Ford Focus, in both four- and five-door versions, in 2010.

• New European small vehicle that will be a “whitespace” entry in North America in 2010.

Other product changes include:

• 2009 Ford F-150, on sale in late fall with the most capability, most choice and most smart features of any full-size pickup, and with more than a 7 percent fuel economy improvement.

• 2010 Ford Fusion, Mercury Milan, Lincoln MKZ sedans, on sale in early 2009, with Fusion’s and Milan’s four-cylinder fuel economy expected to top Honda Accord and Toyota Camry.

• 2010 Ford Fusion Hybrid and Mercury Milan Hybrid, beginning production late this year and on sale in early 2009 with fuel economy expected to top the Toyota Camry hybrid.

• New Ford Taurus sedan with EcoBoost engine and more advanced safety and convenience technologies in mid-2009.

• New Ford Mustang—coupe, convertible, and glass-roof models—in early 2009.

• New Lincoln seven-passenger crossover—with EcoBoost engine—in mid-2009.

• New Mercury small car in 2010.

• Next-generation Ford Explorer with unibody construction, EcoBoost, six-speed, weight savings and improved aerodynamics for up to 25% better fuel economy in 2010

The actions represent a considerable shift in Ford’s North American product plans and investments toward smaller vehicles and more fuel-efficient powertrains in both the near- and mid-term in line with rapid changes in customer buying preferences. The second-quarter —$1 billion more than the $0.3 billion loss in 2Q 2007—is more than explained by the drop in sales volume, said Alan Mulally, President and CEO.

In contrast to the North American results, Ford Europe, South America, and Asia Pacific & Africa all turned in a pre-tax operating profits in the second quarter—$582 million, $388 million, and $50 million, respectively.

Powertrain upgrades. With every new product, Ford expects to be the best or among the best for fuel economy. This drive will be supported by one of the most extensive powertrain upgrades ever for Ford. By the end of 2010, nearly all of Ford’s North American engines will be upgraded or replaced. In addition, within two years, nearly all of Ford’s North American lineup will offer fuel-saving six-speed automatic transmissions.

Coming in 2009 are the first applications of Ford’s new EcoBoost engines. EcoBoost uses gasoline turbocharged direct-injection technology for up to 20% better fuel economy, up to 15 percent fewer CO₂ emissions and superior driving performance versus larger-displacement engines.

EcoBoost V-6 engines will be introduced on several vehicles next year, beginning with the Lincoln MKS and Ford Taurus sedans, and Ford Flex crossover. Four-cylinder EcoBoost engines will debut in 2010 in both North America and Europe. Ford will offer EcoBoost on more than 80% of its North American lineup by the end of 2012.

Ford also plans to double capacity for North American four-cylinder engines to more than 1 million units by 2011, to meet the consumer trend toward downsized engines for fuel economy.

In addition, Ford plans to double its hybrid volume and offerings next year, and is looking to expand further going forward. Production of the all-new 2010 Ford Fusion Hybrid and Mercury Milan Hybrid begins in December. With these new models, the Ford Escape Hybrid—now in its fifth year of production—and the Mercury Mariner Hybrid, Ford will offer four hybrid vehicles. That will make Ford the largest domestic producer of full hybrid vehicles in North America, second only to Toyota in sales volume.

Ford also is introducing six-speeds with PowerShift that offers the fuel economy of a manual transmission and convenience of an automatic; start-stop engines that shut off when the vehicle stops; electric power steering; direct injection, and Twin Independent Variable Cam Timing engines. These technologies will be progressively introduced within the North American lineup by 2012.

Manufacturing conversion. Ford is converting three existing North American truck and SUV plants for small car production, with the first conversion beginning this December.

The moves are in addition to Ford’s announcements in May and June that it is reducing its North American production plans for large trucks and SUVs for the remainder of 2008, as well as increasing production of smaller cars and crossovers.

Among the manufacturing realignment actions are:

• Michigan Truck Plant in Wayne, Mich., which currently builds the Ford Expedition and Lincoln Navigator full-size SUVs, will be converted beginning this December to production of small cars derived from Ford’s global C-car platform in 2010.

• Production of the Ford Expedition and Lincoln Navigator will be moved to the Kentucky Truck Plant in Louisville, Ky., early next year.

• Cuautitlan Assembly Plant in Mexico, which currently produces F-Series pickups, will be converted to begin production of the new Fiesta small car for North America in early 2010.

• Louisville (Ky.) Assembly Plant, which builds the Ford Explorer mid-size SUV, will be converted to produce small vehicles from Ford’s global C-car platform beginning in 2011.

• Twin Cities (Minn.) Assembly Plant—which was scheduled to close in 2009—will continue production of the Ford Ranger through 2011 to meet consumer demand for the compact pickup.

• As previously announced, Kansas City Assembly Plant this year will add a third crew to its small utility line for the Ford Escape, Escape Hybrid and Mercury Mariner and Mariner Hybrid.

In tandem with the realignments, Ford will continue to offer targeted hourly buyouts at its US plants and facilities, working with the UAW to secure competitive employment levels. Ford also said it remains on track to reduce salaried-related costs by 15% in North America by 1 August.

Ford North America still expects to reduce annual operating costs by $5 billion by the end of 2008—at constant volume, mix and exchange, and excluding special items—compared with 2005. In addition, the company said it plans to continue to reduce structural costs beyond 2008.

The company also confirmed Ford, Lincoln and Mercury will remain in its North American brand portfolio. Ford said it will work with its dealers to broaden and accelerate its dealer consolidations, which will result in a dealer network that reflects the changing industry size and model mix.

Ford also updated its current North American planning assumptions, which include:

• US economic recovery to begin by early 2010.

• US industry sales to return to trend levels as the economy returns to health.

• Product mix changes are permanent, but some recovery will occur from the current share-of-industry for full-size pickups—though not back to levels experienced previously—as the economy and housing sector recover.

• Oil prices to remain volatile and high.

• No near-term relief from current level of commodity prices.

• About 14 percent US market share for Ford, Lincoln and Mercury brands.

“One Ford”. Driving Ford’s product transformation is the company’s “One Ford” global product development vision, which will deliver more vehicles worldwide from fewer core platforms, further reduce costs and allow for the increased use of common parts and systems.

In the next five years, Ford will build more than 1 million vehicles a year worldwide off its global B-car platform and nearly 2 million units worldwide off its global C-car platform. With Ford’s global product development plan, all of the company’s vehicles competing in global segments will be common in North America, Europe and Asia within five years. In addition to B- and C-sized small cars, the company’s Fusion- and Mondeo-sized C/D cars and utilities will be common globally. The same will be true for commercial vans.

Resources

• Second quarter earnings review