Losses of 3.3m a day are, by anybody’s standards, careless. For Ford of Europe the three months to the end of September were disastrous.
Intense competition in the European car market was blamed for losses of 302m, announced on the opening day of the Birmingham International Motor Show. But also in the dock, charged with contributing to the losses, were disappointing Mondeo sales and a failure to control runaway costs – something which has preoccupied Ford’s thinking since the launch of Ford 2000 in 1995.
Its arch rival General Motors returned profits of $75m (50m) for the same period, rubbing salt into an open wound.
The thrust of Ford 2000 – the vision of chairman Alex Trotman – is to create a 21st century global company able to deliver quality cars at low cost. Beginning with the engineering side of the business, and carrying through from ball bearings to advertising and marketing, the aim is cost-effectiveness.
The losses immediately triggered speculation of an overhaul at Ford of Europe. Trotman is taking a much closer look at Ford’s European operations amid renewed speculation about cost cutting. Product, personnel and material costs are all being examined and in the first instance 4,000 jobs will go through voluntary redundancies. The full impact of the promised restructure will not be felt until early in the new year.
At its most basic, Ford 2000 means more models coming to market more quickly. By the end of the decade the company will have cut the number of car and truck “platforms” or chassis from 24 to 16, but each will have eight variations rather than the current five.
In theory, the manufacturer gets more product at a lower price because of shared costs. New product development (npd) savings of $11bn (7.2bn) in five years is the target – much of it coming from suppliers which are being asked to cut costs by up to four per cent each year.
While not directly affecting advertising and marketing, the financial results, and the long-term impact of Ford 2000, mean the advertising will have to work much harder. It also puts extra pressure on the new brand marketing structure Ford introduced for all its model ranges across Europe in January.
Each car line now has a dedicated brand team rather than drawing on individuals from different departments. The theory is that this brings consistency over the two or three year launch period of a new vehicle.
Significantly, the financial results came days after a meeting in London to discuss Ford’s first pan-European corporate ad campaign. Both Ford’s European agencies, Ogilvy & Mather and Young & Rubicam, were present but Ford refuses to reveal why a corporate campaign is now on its agenda. “There is nothing we would like to say at this stage,” says Ford spokesman John Oakes from its Detroit headquarters, “I can neither confirm nor deny that this meeting took place.”
But, according to inside sources, the meeting did take place on October 9. Rather than it being a fully-fledged pitch for the estimated $40m (26m) business, the meeting is being described internally as a “strategic debate”. Whether there is a competitive pitch or not is of less interest than the fact that Ford is, for the first time, discussing a pan-European corporate campaign.
“Ford has to move from a position of selling what it manufactures to producing what people want,” says one insider. “There is a lot of competition and the product alone is no longer sufficient for any manufacturer, so as part of Ford 2000 it is focusing on its brand. There is a huge amount of equity in the blue oval and the company is looking at ways of leveraging it, which is where the strategic debate over a pan-European corporate campaign fits in.”
However, Peter Townsend, manager of marketing communications and the man who would co-ordinate any pan-European corporate campaign if it were to happen, says: “There were about three meetings that week and both agencies were involved. In all of those meetings strategy was debated but the idea that it constituted some sort of pitch is wrong – somebody’s read too much into this.
“Moving to brand management has been a major change and we have obviously had meetings to discuss how to position ourselves,” says Townsend. The 302m losses underline the need for a strategic debate. In the US, Ford has reduced ad expenditure although it claims that it has shifted money around rather than “cut” its budgets.
In the UK, total ad expenditure hovered just below 80m last year. However, spending, running at 47.5m for the first eight months of 1996, is likely to come in below last year’s figure. Ford sales in the UK are two per cent lower than at this time last year, and its European market share fell to 10.4 per cent last month compared with 11.7 per cent at the same time last year. That was despite year-on-year sales in the European car market of almost six per cent.
“The losses are a business consequence of the competitive market. Budgets will not be slashed, we are always looking at increasing budgets to increase the amount of time we are on TV. The losses are not good news but we hope the things we are doing will turn it round,” says Townsend.
He admits that Ford is searching for greater “production efficiencies” in its advertising. But that is true of all multinational companies.
Not everybody, however, is convinced that Trotman’s vision is on track. Six months ago Ford explained its strategy to a group of Wall Street analysts.
“It was quite refreshing because for the first time anybody could remember, Ford admitted it had a problem,” says Lehman Brothers auto analyst Joe Phillipi. “Ford 2000 is valid and theoretically should work but there is a view, largely among suppliers, that the message of Ford 2000 has not percolated down to the guts of the company. There is still an enormous amount of disorganisation and cadres of engineers in the bowels of the company – many looking to get out.”
During this period of upheaval Ford has also increased its stake in the Japanese manufacturer Mazda to 33.4 per cent and last week appointed J Walter Thompson to handle a pan-European campaign (MW October 18) for the car market. It was the first sign that Ford is taking closer control of Mazda and is seen by some observers as a blueprint for a future Ford campaign. But Mazda has its own problems which are very different to those of its major shareholder.
Ford’s European losses took the shine off worldwide results that revealed US profits of $634m (417m), up from $187m (123m). Post-tax profits are still a healthy $686m (451m).
The full extent of any restructure will not be known until next year. But anticipate a period of cost cutting that will go hand-in-hand, together with an expectation that advertising and marketing should work harder than ever before.