BUSINESSWEEK ONLINE : OCTOBER 11, 1999 ISSUE
COVER STORY

Europe: Where Ford Needs to Step on the Gas


Ford Motor Co. (F) brought an impressive stable of brands to the Frankfurt Auto Show last month: Jaguars, Volvos, Mazdas, even Aston Martins. Just one thing seemed to be missing: Fords. Cars carrying the trademark oval huddled in a corner of Ford's exhibition space, next to the espresso bar and the free food, far from center stage.

The placing was all too symbolic of the fate of Ford-brand cars in Europe. Ford's product line grew stale under a corporate structure that centralized too much power thousands of miles away at Dearborn (Mich.) headquarters. The No. 2 auto maker in Western Europe five years ago--General Motors Corp.'s (GM) Opel/Vauxhall was No. 1--Ford slipped to fourth this year. Its market share fell from 11.7% in 1994 to 9.3% in 1999. Still the best-selling brand in Britain, Ford is elsewhere in danger of becoming an also-ran.

If CEO Jacques A. Nasser wants to make Ford the world's biggest car company, he'll have to deal with Europe. Analysts expect Western Europeans to buy more than 15 million cars this year, right behind the U.S. To catch up, Ford will have to invest big-time, expanding its product line--even as declining real prices and overcapacity hurt margins.

Under the Ford 2000 organization set up five years ago, Ford centralized much product development and marketing. As a result, designers didn't focus enough on making cars specifically for Europe, says John R. Lawson, an auto analyst at Salomon Smith Barney.

Now, Nasser is moving to give regional managers more input. Nick Scheele, 55, who took over as Ford of Europe's president in July after heading Jaguar, vows new designs that will give the line more identity. Ford of Europe recently moved its headquarters to Cologne, partly to cash in on the esteem consumers have for German engineering. And Scheele is trimming capacity, converting a plant near Liverpool to produce Jaguars instead of Fords.

The good news for Ford: Its new Focus line of small cars is a hit, selling half a million models in a year. In Germany, the Focus compact sedans, hatchbacks, and station wagons have sold 73% more this year than the Escort line they replaced. Magazines praise the Focus' combination of interior room, handling, and new-wave styling. And in a break with its recent past in Europe, Ford kept up marketing pressure after the launch. ''We have to do that across the board,'' says Scheele.

Mindful that Scheele doubled sales during his seven years as CEO of Jaguar by making the cars' reliability match their good looks, competitors are bracing for a counteroffensive by Ford. ''He understands European customers as few others do,'' says Robert W. Hendry, CEO of Opel. ''I expect Ford to prosper.''

But rivals have a big head start. Renault's Scenic microvan, launched in 1996, was a runaway hit for which Ford had no answer. Volkswagen's midsize Passat, redesigned in 1996, invaded turf occupied by Ford's Mondeo. And Mercedes' snub-nosed $28,000 A-Class brought the prestige brand into Ford's territory.

Scheele says Nasser is giving him a free hand and no stated deadline to turn things around. But, he adds with a smile, ''Jac is quick, and he expects everyone else to be quick.'' Alas, quickness is the thing Ford of Europe has so far lacked.

By Jack Ewing in Frankfurt

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