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MotorWorld by Alex Taylor III Column archive
January 24 2008: 1:41 PM EST
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Ford chases a moving target

'07 was better than '06 but the future still looks plenty challenging.

By Alex Taylor III, senior editor

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Ford CEO Alan Mulally acknowledges that the automaker faces challenges.

NEW YORK (Fortune) -- With one full year under his belt, Ford CEO Alan Mulally can point to a lot of progress in pulling the automaker back from the brink. But a look at Ford's financial results, as well as some comments that Mulally himself has made in the past few days, shows he still has lots of unfinished business to take care of.

Number one: Volvo. Ford (F, Fortune 500) seems to have a black thumb when it comes to European auto companies, as its two decades of mismanagement at Jaguar demonstrate. Despite heavy investment in new models, Volvo lost money last year as it got hammered by the weak dollar. Ford wrote down its value by $2.4 billion. The speculation around Detroit is that Ford needs to untangle Volvo from its global product development, in which it shares components with other Ford products, and then try to sell it.

Number two: Mercury. Looking around the auto show last week, one veteran observer detected the presence of neither new models nor any concept cars on the Mercury stand. He concluded that Mercury does not have long to live as a separate brand. As Lincoln's presence in Ford's future grows, Mercury shrinks. Ford would hate to give up the nearly 170,000 unit sales last year that Mercury produced, but would happily lose the extra marketing expense.

Number three: The F-series pickup truck. Of the more than two million cars and trucks sold last year with the Ford blue oval, nearly 700,000 of them were full-size F-series pickup trucks. That's too much. Trucks have been a nice business for years but they will be a less-nice business going forward. High gasoline prices, slumping home construction, and greater competition will make this segment less profitable than it has been in the past. Ford has high hopes for its '09 redesign, and a handsome truck it is, but it needs to reduce its dependence on the F-series and dig for profits somewhere else.

Number four: The missing subcompact. With small cars growing in importance, Ford has nothing to compete with the Honda (HMC) Fit, Toyota (TM) Yaris, Nissan (NSANY) Versa, or even the Chevy Aveo. It showed a thrilling concept version for a small car, codenamed Verve, at the Detroit show, but it is a long way from introduction. Part of a global product development program, it will be introduced in Europe later this year but the North American version won't be on the market until 2010. That's an eternity to wait when you don't have anything else to sell in that segment.

After moving to Ford, Mulally went through a quiet period while he was learning the auto business, as well as the capabilities of the managers around him, but now seems ready to shift into higher gear.

In ad-lib remarks before the Automotive News World Congress earlier this week, Mulally...

  • implied that he's unhappy with overly rosy forecasts generated by the company that guide product planning as well as sales and marketing. "It's just so important to always be looking through clear glasses," he said. "The worst thing is to not look [at reality]."
  • complained about Ford's relations with suppliers, which, according to surveys, are among the worst in the industry. "I was really proud to be the worst person you guys deal with," he facetiously told the Detroit audience. "It's something I can't even imagine with my background." As head of Boeing's commercial airplane unit, Mulally oversaw relations with thousands of suppliers.
  • signaled he is getting deeper into Ford's new model development process. Mulally, who early in his tenure had difficulty remembering the names of some Ford models, talked up the redesign of the 2010 Taurus as "what we should have had originally. It's just fabulous."

Don't expect Ford's results to be nearly as fabulous, at least right away. Like General Motors (GM, Fortune 500), Ford is counting on industry sales in the United States to come in around 16 million for '08, similar to last year. Independent analysts, however, are expecting more like 15.5 million, and given the panicky reaction by the Federal Reserve earlier this week, the risks are all on the downside.

Mulally has a knack for smiling through the worst of news but he could be hard-pressed to maintain that this year. To top of page

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