Blog: What makes for a profitable car business?
Dave Leggett | 31 August 2006
Mention of Jac Nasser's name in connection with Ford's current financial review of its operations and the possible sale of PAG brands revives that old debate about how far big car companies should be vertically integrated - especially downstream.
Nasser took the wide view - get into high margin areas wherever possible: premium brands (PAG his idea); services allied to car purchase/ownership (financial services the obvious one - look at the profits GM and Ford's finance arms racked up over the years); distribution (get control of profitable parts of the automotive value chain).
Let's face it: making cars in volume segments of the vehicle market is a fundamentally low-margin activity in what is an increasingly crowded global market. The firms that excel in that area with successful business models and big geographically spread volumes, large scale economies - like Toyota - are pretty difficult to catch if they have got themselves ahead. And they have.
When Nasser was dumped, an alternative viewpoint came into vogue at Dearborn: 'back to basics'. That supposedly meant focusing on the business of making automobiles that the market wants. And get out of business activities that detract from that. Tough call to make at the time.
I would just make the point to the Nasser critics out there that Ford's abrupt switch from what might be called 'Nasser-mode' to the much heralded back-to-basics, with its product emphasis, has hardly been a screaming success.
Obviously there's a balance to be struck in a large commercial organisation between core business activities and getting into what might be viewed as more peripheral activities (even if high margin), but if the proponents of back-to-basics are judged on market share (seems reasonable - the market is the final arbiter), the evidence isn't all that supportive is it? Can it really be said that Ford is still undoing what Nasser did? Shouldn't there be some solid evidence by now that back-to-basics has put Ford on a much more solid footing product-wise in the US marketplace (though the European picture is much more positive)? Has Ford Fusion been a little bit late or half-hearted to market?
I am not saying JN was always right, but blaming him for Firestone/Explorer - which was very expensive, a storm out of a cloudless sky in some ways - seems harsh, and the critics perhaps overlook the good ideas he had. Hindsight is a wonderful thing, naturally, but how much of PAG's failings are down to underlying business principles and how much is down to what might be termed 'execution'. What would Reitzle have done differently? Has Ford been well managed since Nasser bit the Ford dust? Why has Ford been losing share at home long-term? How much is down to the product on offer?
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