New boss faces tough job at Ford's luxury unit

July 2, 2002 REUTERS reported that they feel that Ford Motor Co's Mark Fields faces a tricky balancing act in his new role as head of the group's luxury unit, as he tries to cut costs through more parts sharing while preserving the identity of each brand in his care.

As the world's second-biggest car company struggles to reverse losses this year, the Premier Automotive Group (PAG), which Fields takes over on Monday, is under pressure to raise its profits almost tenfold and account for a third of Ford's profits by the middle of the decade.

PAG, which includes Jaguar, Land Rover, Volvo and Aston Martin, will have to raise unit sales by around 80 percent to 900,000 per year by then to get that kind of profit, say analysts who put the group's profit now at about $250 million.

"For Ford, the success of PAG is vital," said Garel Rhys, Professor of Motor Industry Economics at Cardiff University.

"The groundwork has been laid, but it will be a hard job."

Fields, who at 41 has been dubbed Ford's whizz-kid, has a background in marketing and sales and is seen as a cost-cutter. He stripped away layers of bureaucracy at Japanese carmaker Mazda, one third owned by Ford, which returned to profit under his leadership.

His youth and flashy style, which to some in Japan appeared brash at first, may contrast with that of his more serious predecessor, German engineer Wolfgang Reitzle, but Fields may be what PAG needs at this moment.

Reitzle quit amid disagreement over reporting lines and the amount of cash available for investment following a management reshuffle and the introduction of a restructuring plan at Ford last winter.

Experts say Ford has set each unit of PAG on a sound course in terms of product development and co-operation in back office and management functions, but the company must now seek cost savings in production.

"The emphasis will shift to cutting costs and sharing modules (groups of parts) -- the initial strategy now will be pruning," said Al Bedwell, an analyst at forecasters JD Power-LMC.

Analysts say PAG family members could share engines and other major parts, possibly even platforms -- the basic undercarriage of a car -- and could even share some parts with some of Ford's other models.

"It will be a major objective and a challenge to make sure there are synergies where appropriate but that they do not make the products indistinctive," said Rhys.

He reckons up to 40 percent of the value of parts could be shared between PAG cars, compared with around 60 percent between some of Volkswagen's brands.

VW introduced a "platform sharing" strategy in the 1990s, resulting in a more efficient manufacturing process. However, it also led to what some experts call the "cannibalisation effect," whereby a cheaper car built on the same platform as a more expensive car can eat up the latter's customers.

Growing markets

PAG stands to gain from a market segment with good growth potential, albeit amid increasing competition, say analysts.

JDPower-LMC expects 50 percent growth in Europe's luxury car market over the next five years, about double that of the mass car market and PAG is building up a solid range of cars, with Volvo's line-up looking the most promising with its small S60 and larger S80 cars.

Although the Swedish carmaker has its sights on top premium brands, it can also compete with firms such as Toyota Motor Corp

and Honda Motor Co., especially in the United States, say analysts.

Jaguar may have a tougher time as its small X-type is going head-to-head with formidable rivals such as BMW's 3-Series and Mercedes' C-Class. Observers note that some critics already argue the X-type is too similar to a (Ford) Mondeo to achieve a premium status on a par with its German competitors.

"It is a big question whether they will be able to take on the luxury giants, BMW and Mercedes -- I remain unconvinced they will manage that," said a London-based analyst.

Loss-making Land Rover is also targeting a segment with strong growth potential. JD-Power LMC expects the sports utility vehicle market will rise to 5.5-6.0 percent of the European market in the next five years from 3.7 percent now.

PAG's parent company has relieved one headache for Fields -the ailing Lincoln and Mercury brands will be shifted from PAG to the company's North American business unit.