GENEVA SHOW: Vehicle makers facing "deflationary pricing environment" - Ford COO
Vehicle makers are facing a deflationary pricing environment as consumers demand more equipment and features on cars for the same or lower prices, Ford chief operating officer Nick Scheele said at the Geneva motor show on Tuesday, according to Reuters.
"We must always look for costs to be taken out. And the reason is that we are an industry where consumers are demanding ever-lower prices, not just from the Asians, but from everybody," Scheele reportedly told CNBC.
"Essentially we've seen negative price movement for the last several years - that's in a constant-content car," Scheele added. "But obviously people are now bidding for air conditioning, bidding for an airbag and on and on, so the content goes up, but real prices are at least stable and probably down. We've seen that over the last couple of years, especially here in Europe, and in the US."
According to Reuters, Scheele said currency volatility is compounding the problem at the moment, with the strong euro and weaker yen and won giving an advantage to Japanese and Korean car makers in Europe. However, he reportedly said this was a "temporary situation."
Scheele said one way to increase margins in such a difficult environment was to develop more specialty and upmarket versions of its cars, such as the Focus C-Max multipurpose vehicle [minivan] and the StreetKa roadster [convertible], the report added.
Reuters noted that Ford has set a target of improving profits at its European arm by roughly $US1 billion this year, after losing $1.1 billion last year due to declining prices, shrinking market share and currency costs.
The carmaker has pledged to cut 6,700 jobs in Europe and make other cost-cutting moves, such as increasing production in Turkey, while relying on new models such as an updated Ford Focus later this year to boost profit margins, the report added.
Reuters also noted that Ford executives have said the European market had become more competitive as the US dollar sank to record lows against the euro, and European consumers shifted from mass-market brands to premium ones.
To counter the shift, Ford plans more models from its Jaguar, Land Rover and Volvo brands. It expects its European luxury brands to earn between $500 million and $600 million this year, more than double what they made in 2003, Reuters said.