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BusinessWeek: January 11, 1993 |
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Top of the News
RED HOT, RED INK High atop a Renaissance Center tower in downtown Detroit, behind a door marked "Taurus War Room," Ross H. Roberts is executing his battle strategy. As John Philip Sousa marches blare in the background, Roberts and other Ford Motor Co. managers hit the phones. They're exhorting Ford dealers to sell another Taurus or five before yearend. The objective: to defeat Honda Motor Co.'s Accord and make Taurus the best-selling car of 1992. With Taurus trailing Accord by fewer than 15,000 autos at the end of November, says Roberts, "we're within shooting distance." Victory won't come cheap for either company. Both are offering fat incentives to lure buyers in the year's final weeks. What's at stake are bragging rights, mainly. The best-seller's crown gives a car advertising cachet, and dealers believe it helps them clinch sales. "This is all corporate machismo," says Ronald A. Glantz, an analyst at Dean Witter Reynolds Inc. The race means more than that to Roberts, general manager of the Ford Div. He thinks beating Honda would fire up employees and burnish the nameplate's image. It would be the crowning achievement for the hottest full-line auto division--domestic or import--in America today. The division's car sales rose 11% in 1992, despite a flat market. Its light-truck sales shot up 16%, vs. the industry's pace of just 13%. Ford is on a roll, all right. But keeping the momentum building will be tricky. That's where a Taurus victory would pay off. So, says Roberts, "we're doing every little marketing thing we can think of" to win. That includes an aggressive, $249-a-month, two-year lease deal that knocks up to $2,600 off the price of a well-equipped Taurus, figures rival General Motors Corp. For those intent on owning their car, Ford is offering cash incentives of up to $1,550. "Ford is buying Taurus sales," says Glantz. SITTING PRETTY. Ford can't keep it up forever. Analyst Scott F. Merlis of Morgan Stanley & Co. estimates that extra incentives will cost Ford at least $50 million before taxes in the fourth quarter. That, plus a special charge for retiree health-care benefits and for laying off 10,000 employees from the ailing European operation, will bring the quarter's loss to $976 million, Glantz predicts. And all that is on top of a $7.5 billion charge, mainly for past health-care costs, that was applied to 1992's first quarter. With a surge in demand, Ford could move solidly into the black this year, however (page 63 41 ). The Big Three's low-cost producer, Ford breaks even with its plants running at just 68% of capacity, and anything above that increases profits dramatically, says George Peterson, president of AutoPacific Group Inc., a Santa Ana (Calif.) research company. Now running at 91% of capacity, Ford is sitting pretty. While waiting for a sales rebound, though, Ford is trying to grab market share from the Japanese--and troubled GM. Ford executives deny targeting their crosstown rival, but "if they're going to give up [share]," says Roberts, "we might as well take it." Ford's chief weapon is its product line. It expects to cop 5 of the top 10 spots on the roster of the year's best-selling cars and trucks (table). Thanks to a string of well-made vehicles, aided by savvy marketing, the Ford Div. has captured 20.1% of the U.S. light-vehicle market, up 1.7 points in 1992. Its parent company also picked up 1.7 points, to 24.7% of the light-vehicle market. AGING BEAUTIES. Ford is continuing to step on the gas with some new entries. It has cut a year off its five-year development cycle but needs to shave one more. That will help it more quickly revamp aging models, such as the Mustang, which will be 14 years old when a new version comes out next fall. Roberts says the new Mustang will be "a knock-'em-dead car," and some outsiders agree. "It's just sex on wheels," says AutoPacific's Peterson. Already selling well is a new, sporty Probe that came out in mid-1992. No other model is ready, though, to replace the Taurus as Ford's flagship--which is why the competition with Honda is so intense. Taurus has been gaining on Accord (chart), but Accord has held its lead throughout 1992. By December, Taurus, which outsold the Accord by about 5,000 cars in November, still needed a one-month sales increase of at least 30% to win. Ford, with 4,500 U.S. dealers to Honda's 1,000, has more strings to pull. With the pressure on, Bert Boeckmann, owner of Galpin Ford in Sepulveda, Calif., says he'll sell as many as 150 Tauruses in December, up 40 from November. Ford also is offering a $1,000-a-car discount to dealers who stock more Tauruses to use for rentals and service-department loaners. Ford's ultimate weapon is its ability to sell more cars to rental companies, something Honda rarely does. Many analysts and competitors think Ford has been pumping up fleet sales to put Taurus over the top, though Roberts contends that these days "we're selling fewer Tauruses to rental fleets." In any case, Honda won't give up the No.1 spot without a hard fight. "This is one of the most vicious, expensive wars I've ever seen," says Morgan Stanley's Merlis. Honda's weapon of choice: a $199-a-month, five-year lease on a stripped-down Accord. The company also offers a $500 dealer incentive and a "Spin to Win" contest that awards up to $500 to sales staff who sell Accords. Honda, which has held the title since 1989, gets 51% of its U.S. sales from the Accord. "It's more important for Honda to retain [the title] than for Ford to gain it," says Tom Dukes, director of competitive assessment at J.D. Power & Associates in Agoura Hills, Calif. "Honda's fortunes rise and fall on the Accord." JUMPY. But Honda, suffering from weak sales in Japan, isn't out to win at any cost. Says a company official: "We're not going to jump into fleet sales all of a sudden or add customer incentives." With so much at stake, both sides are feeling jumpy about the outcome. Ford and Honda will each have its results tabulated by Jan. 6, during the North American International Auto Show in Detroit. Neither side wants to reveal its numbers first, so Roberts' team proposed that both sides hand sealed envelopes to a neutral party. Unable to agree on an intermediary, though, the companies plan to make separate announcements. While nobody wants to predict a winner yet, Roberts already has ready-to-air TV ads bragging about a victory. But the winning side won't have long to rest on its laurels--the field gets more crowded in 1993. Chrysler Corp.'s new LH cars and Toyota Motor Corp.'s Camry are coming on strong. And Honda has a redesigned Accord due out in the fall, followed by Chevy's new Lumina. Before too long, Roberts may have to crank up the Sousa for next year's fight. | |
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