FACE TO FACE: with Kathleen Ligocki, President of Ford Mexico
Ford Motor Company gave Kathleen Ligocki's career a significant boost on July 12, 2001 by promoting her to corporate Vice-President of Canada, Mexico and North American Strategy, effective August 1. Since January 2000 she has served as president of Ford Mexico. In her newly created position Ligocki reports to Nick Scheele, Ford's Group Vice-President for North America, while Scheele answers to Jacques Nasser, CEO Ford Motor Company.
During August, Ligocki not only begins her new position in Dearborn, but also remains president of Ford Mexico, as the company searches for her replacement there. These dual responsibilities, although temporary, mean she will be shuttling frequently between Michigan, Mexico and Canada.
Shortly before leaving for Dearborn, Ligocki granted an exclusive interview to Marc N. Scheinman of Just-Auto.Com. In a far- ranging discussion, published below, she reveals the company's positioning strategy in Mexico (by model and brand), examines the country's global competitiveness and offers frank comments about future industry investment and new plants.
just-auto.com: When you became president of Ford Mexico in January 2000 what were your major challenges?
Kathleen Ligocki: Our objectives were to implement three strategies:
(1) Develop a profitable portfolio of products and services covering all segments
(2) Provide a superior CSI (consumer satisfaction index) by "getting close" to our customers and enhancing their experience with our products and services, and
(3) Achieve better leverage in supply chain management-vehicles and power-trains for all North America.
just-auto.com: With reference to the first strategy what was your evaluation of Ford's lineup in Mexico? After all, since 1999 you have been market leader in light-commercial vehicles-vans, especially minivans, SUVs and pickups-but weaker in passenger cars.
"It was clear that we needed to pay more attention to our passenger car mix because of changing consumer preferences"
Kathleen Ligocki: It was clear that we needed to pay more attention to our passenger car mix because of changing consumer preferences. I am referring specifically to Mexico's growing taste for smaller European-designed vehicles in both entry level and upscale segments. Ford responded to this trend in 1998 by introducing its first subcompact European car, the Fiesta, which we imported from England. This vehicle is part of the economy or entry-level passenger car segment that accounts for more than 50% of Mexico's domestic sales. It is not only the country's largest car segment, but also the most price-sensitive. Subsequently, in 1999, we launched the Focus in the compact segment, another European-designed vehicle built in Michigan and Hermosillo.
By the time I arrived, therefore, it was clear we needed to accelerate this European passenger car strategy and begin penetrating upscale segments as well as the more affordable market niches. In addition, it was important to increase our market coverage in the growing light truck market. In particular, it was apparent that we needed a smaller, entry level SUV that could be positioned below the Ford Explorer.
just-auto.com: What's been the new vehicle launch schedule under your command and how are these models priced?
Kathleen Ligocki: In October 2000, we introduced the Courier pickup, a vehicle built on the Fiesta platform. This light commercial is imported from Brazil and priced between $10,700 and $12,200 USD and is designed to compete in the entry-level segment. Because of a two-year bilateral automotive trade agreement with Brazil, Ford pays an 8% import duty on all Couriers, 15% lower than the tariff imposed prior to the agreement.
During October, we also launched the Escape, our new entry level SUV that we produce in the USA. This vehicle sells somewhere between $26,000 and $29,000 USD. Then, in February 2001, we began producing the 4-door Fiesta Ikon a larger, roomier Fiesta platform model. Priced between $11,800 to $13,500 USD. The following month, we relaunched our upscale Land Rover brand SUVs that begin at $37,000 USD. And most recently, in May, we introduced our upmarket European family sedan, the Mondeo, imported from Ghenk, Belgium. This vehicle competes in the Family High Segment and is priced at approximately $23,000 USD it is designed to appeal to customers who prefer elegant European styling and tighter handling than usually found in US-engineered vehicles. During May, we also launched the economical 2-door Ka built off the Fiesta platform and imported from Brazil. This vehicle is priced between $10,000 and $11,500 USD.
just-auto.com: The Fiesta Ikon and Escape, two entry-level vehicles, are key elements in Ford's strategy because they have the potential to attract new customers and enhance your CSI. What are your plans for these vehicles in terms of local production and imports?
Kathleen Ligocki: At present we can produce about 18,000 Fiesta Ikons annually in Mexico at our plant in Cuautitlan. Because our production system is flexible, we could easily double this output to accommodate foreign demand in countries like Brazil. As for the Escape, we expect to sell more than 7,000 of these vehicles this year and would sell more if we could get them. Demand has been so high for the Escape in all markets that we can't keep up! During the first five months of the year, we have become the market leaders in the entry-level SUV segment.
just-auto.com: For calendar year 2000, how did you allocate production between domestic and export markets?
Kathleen Ligocki: In 2000, we manufactured slightly more than 280,000 vehicles; nearly 235,000, or 84% were targeted for exports and 45,000 (16%) for the domestic market. From the vantage point of vehicle types, 69% were passenger cars and 31% trucks. It is important to observe that we also built 340,000 engines in Mexico in 2000; 196,000 (58%) for export and the rest for local consumption.
"Demand has been so high for the Escape in all markets that we can't keep up!"
just-auto.com: From the vantage point of vehicle types, how did you allocate passenger car and truck production for the domestic and export markets in 2000?
Kathleen Ligocki: In 2000, 94% of the 193,000 passenger cars Ford produced were for export and 6% for domestic consumption. By contrast, 53% of the 87,000 trucks that we manufactured last year were for the domestic market and 47% for export.
just-auto.com: What are the vehicles that you produce in Mexico?
Kathleen Ligocki: On the passenger car side, we manufacture the Fiesta Ikon for the local market, the Focus ZX3 for both, local and export needs and the Escort exclusively for export, primarily to California where it has remained a key niche vehicle in the entry-level segment. We also manufacture F-Series trucks for local and export markets.
just-auto.com: What percentage of your domestic sales are imports as opposed to those built here?
Kathleen Ligocki: Somewhat more than 70% are imports.
just-auto.com: What are your best-selling passenger cars and trucks?
Kathleen Ligocki: The Focus, Fiesta and Fiesta Ikon have been our best-selling cars during the first five months of 2001. During this period we have sold 7,804 imported Focus passenger cars and 1,120 station wagons as well as 1,291 ZX3's manufactured in Mexico. In addition, we have sold 5,147 Fiestas (imports) and 3,539 domestically-built Fiesta Ikons.
During the first five months of 2001 our share of the retail passenger car market was 9.7%, but in trucks it was a leading 30.9%. Our ten best-selling commercial trucks in the period are:
Windstar minivan (5,506 units), F-350 pickup (3,640), F-150 (3,398), F-250 (2,913), Escape SUV (2,768), Lobo (imported, fully-loaded F-150 from the USA, 2,754), Courier pickup (2,267), Explorer SUV (1,864) Ranger pickup (1,772) and Expedition SUV (1,152).
just-auto.com: During 2000, what were Ford Mexico's total dollar sales?
Kathleen Ligocki: $6.2bn: $2.2bn in domestic sales and $4bn in exports. These figures include engines.
just-auto.com: What do you expect sales to be in 2001?
Kathleen Ligocki: Approximately the same as last year, $6.2bn.
"The strength of the Mexican domestic market is critical to Mexico's future"
just-auto.com: Last year 886,000 vehicles were sold in Mexico (retail). How many do you believe will be sold this year?
Kathleen Ligocki: Our initial forecast was for 915,000 units. This remains an open question but we could exceed this figure if the Mexican economy is strong during 4Q.
just-auto.com: What about your production forecast for 2001?
Kathleen Ligocki: This will probably be flat or down slightly year-over-year depending on the U.S. market.
just-auto.com: When do you believe that 1mn vehicles will be sold in Mexico?
Kathleen Ligocki: Sometime between 2002 and 2003.
just-auto.com: What about vehicle sales in 2005?
Kathleen Ligocki: They should reach between 1.3 and 1.4mn units. The strength of the Mexican domestic market is critical to Mexico's future. For this to happen, the government will have to act decisively in several areas in order to lower net vehicle prices and make them more comparable with the United States. First, it will have to become more flexible in its taxation policy. For example, it will have to dramatically lower or eliminate the ISAN (tax on new vehicles) and tenencia, yearly tax on vehicle usage. Through AMIA, the Mexican Motor Vehicle Manufacturer's Association, we have proposed that a gasoline usage tax replace these other taxes. Other countries, which have so aligned their tax schemes, have realized significant domestic market growth.
Second, certification and homologation in requirements will need to be rationalized across all three NAFTA markets.
Third, credit has to be made more available and there must be greater legal remedies for collecting bad debts to avoid charging a "consumer risk" premium.
just-auto.com: What percentage of your customers purchase vehicles with credit?
Kathleen Ligocki: This number has grown to almost 50% in the last few months, largely a result of Ford Finance because it has the ability to offer very competitive interest rates and financing packages.
just-auto.com: Do you believe that there will be new plants built in Mexico by 2005?
Kathleen Ligocki: Mexico offers a very strong supply base and a capable workforce. I do see Mexican auto manufacturing expanding over the next decade. We are fortunate to have three great plants within Ford at Cuautitlan, Hermosillo, and Chihuahua. Of course, we do not discuss specific manufacturing strategies.
"Mexico offers a very strong supply base and a capable workforce"
just-auto.com: Thinking about investments, new plants and capacity in Brazil, Mexico's leading competitor in Latin America for FDI (foreign direct investment), immediately comes to mind. How will the much-publicized Amazon Project and its launch of a new generation of small and compact vehicles in the beginning of 2002 affect Mexican vehicle output and investment in these segments?
Kathleen Ligocki: It is clear the Amazon Project will be part of Mexico's future and that Mexico will play an important role in this vehicle program. Amazon's new vehicles will be a small passenger car, pickup and SUV. Initially, they will be built in Ford's latest state-of-the-art plant in Camacari, Brazil that is scheduled to open at the beginning of next year. The SUV will be a completely new vehicle.
just-auto.com: Given Mexico's current automotive trade agreement with Brazil and Argentina, how might vehicle trade among the three countries develop?
Kathleen Ligocki: We could import Ka's and Courier's from Brazil and Ranger Super Crew's from Argentina and export Fiesta Ikons to both Brazil and Argentina. These countries have evidenced great interest in our Fiesta Ikon.
just-auto.com: How likely is it that Mexico and Brazil and Argentina will reach a long-term automotive agreement? And, if you had the power to personally design such an agreement what would it look like?
Kathleen Ligocki: It is very likely that Mexico will reach an agreement with each country of the Mercosur. In fact, I believe Mexico will sign with Brazil in 4 to 6 weeks. Argentina is very likely to follow suit.
Regarding the second part of your question. In addition to eliminating all import duties and operating in a 0% tariff environment I would focus on strident local content requirements and unlimited quotas. I would concentrate on the homologation necessary to level the playing field. This will produce a more competitive environment that favors the consumers of our products, i.e. they will be able to purchase vehicles with the same technical specifications throughout the Americas.
just-auto.com: What is the probability of having a Free Trade Agreement of the Americas (FTAA) in the next five years and what could be its impact on the automotive industry in Mexico and Brazil?
Kathleen Ligocki: The probability is high. As you know, President Bush needs the fast track from the US Congress to keep building momentum towards a FTAA. Although Mexico has an impressive free trade agreement network, a FTAA will undoubtedly provide access to those markets where Mexico does not have trading relationships. I reckon that a FTAA can be achieved within the five-year timeframe.
just-auto.com: How much will Ford invest in Mexico in the next few years?
Kathleen Ligocki: Between 2000 and 2003 we will invest $450mn in our Mexican operations.
"Mexico has a well-positioned export base as a result of positive legislation "
just-auto.com: What will the money be used for?
Kathleen Ligocki: Primarily for production changes at our two major vehicle plants, Hermosillo and Cuautitlan, and for capacity expansion at the Chihuahua plant where we manufacture the latest generation I-4 motors for the Mondeo as well as 4-cylinder Zetec engines.
just-auto.com: How would you rate Ford's Mexican operations?
Kathleen Ligocki: Our Hermosillo plant is ranked number 1 in North America (USA and Canada, too) in terms of FPS, the Ford Production System, which is measured in terms of quality systems, inventory flow, leadership, teamwork and total productive maintenance. Cuautitlan is one of the top five plants.
just-auto.com: Given Mexico's increasing global competitiveness how do you envision its future growth in terms of trade and investment with Mercosur and the European Union?
Kathleen Ligocki: Mexico has a well-positioned export base as a result of positive legislation enacted in the past framed by the tangible benefits of the NAFTA, the Free Trade Agreement with the European Union and, shortly with the Mersocur countries. Now, I feel that we have to concentrate much more on the domestic market that, together with our strong export experience, should yield a very positive environment for investments in the country. Furthermore, with a sound automotive policy, Mexico should position itself as one of the most successful manufacturing hubs in the world.