The stocks of the second-biggest US carmaker fell as Ford issued its second profit warning this year and announced that a further 1,700 of its US staff would lose their jobs. Rising costs of raw materials and soaring employee health contributions are often cited as the main reasons for Ford’s woes, but these alone are insufficient to explain its malaise fully.
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Certainly it would be foolhardy to ignore the impact of healthcare and pension overheads when assessing Ford’s current parlous state. Yet there are clearly other factors at play – most notably the fact that Ford is letting itself down with its present model range. The Michigan-based carmaker sold 5.7% fewer vehicles in the first five months of this year compared to the same period in 2004. The only model in Ford’s American line-up that has bucked this trend is the Mustang, whereas the bigger SUVs and the marque’s older models continue to slide, causing the company to cut US output twice this year.
According to Merrill Lynch research, Korean brands renew as much as 30% of their model range every year and Japanese manufacturers manage as much as 21%. Ford’s 16% renewal rate appears sluggish in comparison. Hence, it is hardly surprising that while Ford is announcing a drop in sales and market share, Toyota’s results point in the opposite direction.
One underlying reason for this could stem from changing tastes among auto buyers. Toyota, and its counterparts in the Asian auto sector, have overcome US consumers’ traditional reticence to purchase foreign vehicles by offering models that are reliable and good value as well as innovative and modern.
It is surely no coincidence that the vehicle of choice for stars arriving at this year’s Oscars ceremony was not the classic limousine, but rather Toyota’s novel Prius hybrid vehicle. Some may argue this is circumstantial evidence – but Ford should take note of the Asian players’ position at the forefront of technological innovation. If the firm can show US consumers that Ford cars are as reliable, up-to-date and well designed as their Asian rivals, it would be in a stronger position to drive a sales recovery, making it easier to tackle the daunting healthcare and pensions issues.
Global Automotive Manufacturers
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