Ford of Europe’s chairman and CEO Stephen Odell tells just-auto that he is relishing his return to Europe, happy with Ford’s prospects, but concerned with industry overcapacity in the region.
Stephen Odell is pretty well travelled within the Ford empire. Until earlier this year he led the now divested Volvo Car Corporation. Prior to that he had been chief operating officer for Ford in Europe and he had a stint at Mazda where he was a board member. In the US he held a number of positions including head of North American sales and marketing for then Ford-owned Jaguar in 1997. He’s been with the Ford Group since joining Ford of Britain as a graduate trainee in 1980. When the decision was taken that Volvo Cars would leave the Ford family, Odell decided that he didn’t want to go.
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The breadth of his international experience in the auto industry leaves him with a sense of perspective on the industry as a whole which he is keen to share. He jokes that wherever he goes, economic ruin follows.
“I was in the US in the eighties, Japan at the turn of the century,” he notes.
“And when I went to Volvo [cars] as the first non-Swede to run Volvo at a time that I knew we were getting it ready to sell to the Chinese and the recession hit….I thought I was going ice skating and it turned into triple-toe-loop level of difficulty.”
He looks back on his time with Volvo as an ‘interesting part of my life’ and is relishing the challenge of being back with Ford in Europe.
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By GlobalDataBut he is clearly a little concerned at the state of Europe’s auto industry. The vehicle market is well below pre-crisis norms but he pinpoints a lack of capacity adjustment in Europe, contrasting with the situation in North America.
“Fundamentally, Europe is different to North America,” he says, noting that he has seen an estimate of installed excess vehicle production capacity in Europe of 35%.
He is sceptical that the required capacity adjustment for the industry in Europe is coming.
“The US industry took out huge chunks of capacity before and during the recession. I honestly think that if Europe’s overcapacity was coming out, it would have come out [by now].”
Odell maintains that Ford in Europe is operating at a level of capacity utilisation in the ‘high eighties’ (percent capacity utilisation) and that’s fine. But the prevailing tendency in Europe, he believes, is to ‘stick with it’ and wait for the market to grow and capacity utilisation to rise.
However, he reiterates that Ford in Europe has a manufacturing footprint that the company is happy with. “We don’t see any significant changes in the footprint, although you never say never…”
Which is followed by a very interesting management observation: “One thing I learned at Volvo is that you should never let a crisis pass you by; it enables you and gives you permission to do things that you otherwise couldn’t do.”
(I don’t have the best memory in the world, but I do recall Volvo Cars announcing ramped up job cuts back in late 2008 when the economic crisis broke…SWEDEN: Volvo Car axes 4,000 more posts )
But the playing field in Europe in 2010 is certainly not an easy one. Odell says that in addition to the impact of recession, vehicle manufacturers are having to contend with a regulatory environment that has added an average GBP3,500 over the past ten years to the cost of a car. No-one is finding the business of making and selling mass-market cars in Europe easy, though Odell reckons Ford is well-placed for the future, despite a Q3 Ford of Europe loss.
“It is difficult,” he acknowledges. “And we are not alone in the third quarter in reporting a loss, but that loss was not unexpected given the economic situation and the fact that we were gearing up for the launches of C-Max, Grand and Compact, as well as the new Focus, which we continue to invest in.
“Through September we are still $630m better, year-on-year, than we were in the same period of last year.”
And he has high hopes for upcoming Ford models. “I’m not quite as silly as I look; I did look at the cycle plan before I came back. When I was on the Paris [show] stand, someone said to me ‘what’s new on the stand?’ and I couldn’t point to anything that wasn’t new, which I think is testament to Ford continuing to invest even in difficult times and we’ll reap the rewards of that going forward.”
But is there a glaring gap in Ford’s portfolio at the big car/premium end of the market now that the premium brands have been sold off? Odell is dismissive of the notion that the Ford brand could revisit Granada/Scorpio big car territory in Europe.
He points out that there is more cabin space in the current Mondeo than in the Scorpio of yesteryear and that the cars have similar dimensions. A big Ford saloon above the Mondeo sounds unlikely.
“I think there are opportunities with the platforms that we have got to do a number of things. But that particular segment is difficult and has shrunk dramatically – probably 50 or 60 percent over the last twenty years.”
With Jaguar and Volvo gone, what about bringing the Lincoln premium brand to Europe? It won’t be anytime soon.
“Alan [Mulally] was talking a bit about that when he was in Paris. I really like the Lincoln plan to re-energise and take Lincoln forward in the US. And I think Alan was spot-on when he said we will get Lincoln right in North America first and then we will decide whether there is capability, desire and opportunity to expand it beyond there.
“I think there is still a lot of room to flex the Ford brand in Europe and I’d rather do that first and properly. I’d rather do a few things really well than do a lot of things averagely well.”
Russian ops face ‘new attitude’ from government
Europe is a pretty big place and Odell’s territory includes Russia. It may be a BRIC, but it has been the odd-man-out among its BRIC peers as it has experienced severe recession and a plunging car market over the past eighteen months.
How are things looking there? Could excess capacity at the Ford St Petersburg plant offer the opportunity to ship west? That’s not on the agenda, the Ford plant in Russia firmly fixed on supplying the Russia market.
“We sell everything we make at the St Petersburg plant in Russia. After the market collapse, the Russian market is tracking back towards 3m units now. But in some ways there are some fallacies out there. It’s not necessarily the cost of manufacturing, but the cost of landing it where you sell it. Freight and duties can have a big impact.”
Watch the space in terms of Russia. The Russian government is planning to announce a new policy for the auto industry – changes designed to increase manufacturing in Russia – and Odell reckons they have taken a few lessons from China.
“I think they have looked over the wall at China and said ‘we may have missed a trick; maybe we should have ensured that the OEMs work with partners here rather than just be allowed to operate on their own’. And the Russians are a bit like the Chinese in the sense that when they decide to do something, they just get on and do it.”
Odell sees a change of attitude in Russia ushered in by the economic downturn, but there are considerable uncertainties ahead in terms of how foreign investors like Ford will be impacted.
“Up until eighteen months or so ago, it looked like the industry in Russia was well established. But there is a change in attitude there and how it will end up is not clear. There is legislation being discussed and we’ll probably see a proposal soon, but what that means – for example, you have to assemble so many locally, or engines or percentage of local sourcing of components, we’re not sure…”
Odell cautious on EVs
The conversation moves to electric vehicles. An electric Focus is slated for 2012. But Odell is cautious about the rate at which electric drive vehicles will grow in the marketplace.
“I think the electric car is one of the solutions, but I think it is probably further out as a scalable solution than people are indicating.”
Odell notes that the forecasts for electric drive take-up vary widely.
“My own personal view is that some form of electric drive [hybrids or EVs] will probably be under 10% share in ten years’ time. Why not higher? One thing is affordability. At the moment the model is very dependent on government incentives to make it work and governments are about to go through some interesting times…
“And to get to some of the higher forecasts there has to be a dramatic change in industrialisation, the cost of batteries, the range that they can provide, service capability and the ability to charge.
“I saw some research that said 50% of people would consider buying some form of hybrid or electric vehicle, but only 5% are prepared to pay the [higher] price for these vehicles. The intent may be there but the purchase equation doesn’t quite work.”
Next Focus ramps up parts commonality
The next Ford Focus is clearly a very key model and platform for Ford, in Europe and globally. Odell emphasises the global aspect to new product development that can lever massive industrial economies of scale, while leaving the capability to tweak the product for local market requirements.
“Everything we do in the future will have much higher commonality. I think the Fiesta, North America to Europe, has 64% commonality and the Focus has something like 86%.”
See also:
PARIS SHOW: Ford may take Lincoln worldwide
PARIS SHOW: Ford’s C-platform strategy adds up
FIRST LOOK: One Ford strategy takes shape in C-Max
GERMANY: Ford readies plants for imminent Focus production
