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Ford's Bumpy Odyssey In Europe


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FORD'S BUMPY ODYSSEY IN EUROPE

Angus Frazer first came face to face with Ford's new Fiesta outside his St. Tropez hotel on a recent Sunday morning, and he was not entirely impressed. Although the motoring editor for Top Gear, a popular British magazine for car buffs, praised the car's performance, he says the front "has got a real down-in-the-mouth guppy look." When the Fiesta hits Europe's showrooms on Nov. 16, Ford Motor Co. can only hope customers will take a more positive view. At $12,000, the new Fiesta is slightly pricier than its main rivals, the Volkswagen Polo and the Fiat Punto.

Ford has a lot riding on the new subcompact: The current Fiesta is its No.1 seller in Europe. While other carmakers also are struggling in the slow-growing European market, Ford seems to be having more trouble than most (table). The company surprised analysts last month when it reported a $320 million loss in Europe for the third quarter, largely because of increased marketing and launch costs. Moreover, critics say European operations are showing signs of strain as Ford undergoes a massive worldwide reorganization. Even talks with labor unions representing 22,400 workers in Britain aren't going well. "It has been tough," sighs David N. McCammon, Ford's vice-president for finance. "Many of us hadn't anticipated how weak Europe would be."

Some industry experts believe the state of Ford's product mix isn't helping matters. Ford's No.2-selling car, the Escort, will not be replaced until the new "world car" appears in 1998. The Escort got a facelift this year--it was originally launched in 1990--but is beginning to show its age against such sassy newcomers as the Fiat Bravo and Renault Megane. DRI/McGraw-Hill projects Ford's share will slip from 12% now to 11.5% next year.

Ford faces problems on other fronts as well. Labor talks could turn sour when they resume in Britain on Nov. 15. Workers are asking for an immediate 10% pay hike, plus a two-hour reduction in a 39-hour workweek. But the company's offer is much lower, at only 3% a year for two years, and it opposes trimming work hours.

Some Ford suppliers, meanwhile, are fuming at a recent company dictate to freeze component prices for five years. One supplier says Ford just informed him that he must cut prices by 5.9% next year. With inflation in Britain at about 3.5%, that adds up to a hefty 9.4% price cut. Faced with steel price hikes, "clearly we've got some tough negotiations ahead with Ford," adds Ken Worthing, managing director of Milton Keynes-based Belsize Engineering, which supplies drive trains.

HOT ENGINES. The transition to Ford 2000--the company's radical attempt to break down geographic barriers and produce cars for the global market--also may be upsetting Ford's European operations. In the new setup, Europe becomes top dog in developing small and midsize cars. As a result, some 500 managers have been transferred, either from the U.S. to Europe or from Europe to the U.S., in the past nine months. "We're not seeing a clear, well-defined organization," says supplier Worthing. Ford admits some confusion exists but says it's being worked out.

The company has its bright spots. The Fiesta and other new models will have hot new engines--something Ford has neglected in the past. And with next year's launch of a new city car, code-named "Ka," Ford will beat Volkswagen and General Motors Corp. into that promising market. But for now, the new Fiesta is going to have to carry a big load.

WARNING SIGNS ON THE CONTINENT

RED INK Higher marketing costs pushed Ford Europe's third-quarter loss to $320 million, vs. a loss of $37 million for the period last year

NEW MODEL Reviewers are giving the redesigned Fiesta, due out on Nov. 16, high marks for ride and performance but poor grades for looks

SUPPLIERS Parts makers are fuming over Ford's plan to freeze prices paid for components until 2000

LABOR Ford and its 22,400 union workers in Britain are at odds over pay and working hours

DATA: BUSINESS WEEKBy Heidi Dawley in London, with Keith Naughton in Detroit


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