Ford Motor Company is already one of the supplier community's least favourite customers and its botched European turnaround plan is a prime example of why that is, reports

Ford's latest cutbacks in Europe have increased worries about future model programs for suppliers already hammered by endless rounds of cost-cutting. True, Ford has had some bad luck in Europe. It was the carmaker hardest hit by the high exchange rate of the British pound at the beginning of the decade. It has also been deeply affected by the decline of its Mondeo profit mainstay in Europe, as C-segment minivans such as the Renault Scenic and Opel Zafira have drawn away buyers.

And Ford's $744 million loss in Europe in the first half of 2002 was partly due Ford's position in its model cycle.

But Ford's vulnerability is also due to failures in its turnaround plan in Europe. The company's previous rounds of cost cutting have contributed to the problem.

Ford has been through a vicious circle of cost-engineered models that fail to appeal to increasingly affluent consumers, leading to a further round of de-contenting, followed by further erosion of the value of the company's mass market brand.

The gap with the mass market leader is particularly apparent in the C/D segment. That has direct implications for Genk, the home of the Mondeo, which has now moved from three shifts to two. The latest troubles will only add to worries at suppliers about future Ford programs.

Ford's previous attempts to radically attack its cost base have been innovative, but have added new layers of risk for its suppliers. Ford's modular approach to building a car on the expertise of full service suppliers has transferred a growing level of commercial risk to those suppliers. Meanwhile, the suppliers have then endured rounds of attacks on their prices from new waves of management that attempt to correct the consequences of their predecessors' decisions.

And the methods have sometimes lacked any pretence of fairness. Ford's pay-on-production initiative, for example, shifted investment costs to suppliers who faced a higher cost of capital than the world's number two carmaker. Then Ford hit them with TVM (Total Value Management) teams.

The latest round of cost cutting may be an unavoidable short-term measure for Ford but it removes an important option in Ford's plan to get out of its crisis. Pulling investment in Focus at Genk removes Ford's ability to flex volumes between C and C/D segment cars to respond to its customer's preferences -- in the way Volkswagen does at Mosel with the Golf and the Passat.

The flex capacity was promised to Genk in February 2002 by David Thursfield, then chairman of Ford Europe, to ease the consequences of the shift of Transit production to Turkey.

Ford has not been a preferred partner of suppliers for a long time -- even if, as one senior supplier executive noted, you can't ignore the second largest carmaker in the world.

But after this latest flip by Thursfield's successor, Lewis Booth, many suppliers will want to give RFQs for future Ford programs in Europe an even tougher screening before committing to investments.

Gap between Ford and Volkswagen in Europe

Model List price Unit sales
Mondeo - Passat 14.0% 33.0%
Focus - Golf 15.1% 6.8%
Fiesta - Polo 8.9% 4.3%

NB Volkswagen premium or sales lead as percentage of Ford price or volume; data market weighted, Jan-July 2003

Source: from industry sources