A Billion Reason$ To $ay $o Long To The Couger, Villager. Continental

Lincoln Mercury, the up-market US carmaker, incurred losses of close to $1bn last year as a combination of falling sales and costs linked to the Firestone tyre recall undermined the Ford subsidiary's operating performance.

The unpublished figures, obtained by the Financial Times, signal a sharp deterioration at Lincoln Mercury, which generated operating profits of almost $1.2bn in 2000.

Losses at Lincoln Mercury were the main factor behind weakening contributions last year from Ford's Premier Automotive Group (PAG), which includes Volvo, Jaguar, Land Rover and Aston Martin.

On Thursday, Martin Inglis, Ford chief financial officer, confirmed that Lincoln Mercury adversely affected PAG's results, but declined to give details.

"We are exploring whether from 203 we could provide more [financial] detail on PAG," said Mr Inglis. "Overall [PAG] was worse in 2001 than 2000 because of Lincoln Mercury."

Its figures offset profits of almost $700m at Volvo Cars - up 15 per cent on the year - and a $150m gain at Jaguar. Aston Martin was also profitable, but contributed only $10m-$15m, according to Ford insiders.

Lincoln Mercury's losses were exacerbated by a $250m deficit at Land Rover, acquired by Ford for almost E3bn from BMW of Germany in 2000.

"No-one counted on Lincoln being so bad, it came as a real surprise in the fall of last year," said one official. "It means that PAG has to be really close to break-even."

PAG and Lincoln Mercury declined to comment.

Nevertheless, people familiar with the situation confirmed that Lincoln had been hit by rising incentive costs during the year and expensive recalls.

Its Mercury sister-brand was badly affected by Ford's recall of 13m allegedly faulty Firestone tyres, which affected its Mountaineer model - based on Ford's best-selling Explorer sports utility vehicle.

Senior executives, who have launched a strategic review of the group's role within Ford, vowed that the Mercury brand would be retained - even though it boasts few of the premium characteristics of Lincoln.

Mercury will rely largely on re-rebadged and re-engineered Ford vehicles in future, acting as an entry-level brand for customers whom PAG hopes will graduate to Lincolns.

Lincoln itself will concentrate more on sports utility and so-called "cross-over" vehicles, pending Ford approval for a $1bn-$1.2bn investment programme. Production of its existing Continental model, assembled at the Wixom plant in Michigan, will end in the middle of the year.

Unveiling its restructuring last week, Ford executives claimed that PAG - including Lincoln Mercury - would contribute about a third of total company profits by the middle of the decade.