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The Corporation: NEW PRODUCTS
FORD'S THREE-TON EXCURSION: A GREEN DILEMMA
Its new sport-ute promises big profits--but guzzles gas
When the Sierra Club caught wind of Ford Motor Co.'s plans for a king-of-the-road sport-ute, it asked its members to give the new model an appropriate name. At 19 feet long and weighing nearly three tons, the hulking new Ford will be the biggest passenger vehicle on the road when it rolls out next fall. And it is expected to burn up a gallon of gas every 12 miles. So the Sierra Club's members couldn't resist dubbing the vehicle the "Ford Valdez" and offering this ad slogan: "Have you driven a tanker lately?"
Ford, not surprisingly, spurned the environmentalists' marketing tips and came up with its own name: the Ford Excursion. But the criticism starkly points up a problem facing the auto maker. Incoming Chairman William Clay Ford Jr. has pledged that when he takes the wheel on Jan. 1, going green will be Ford's new Job 1. However, its success doesn't exactly flow from nature. Ford's outsize profits mostly reflect its dominance in selling the high-margin--and gas-thirsty--sport-utility vehicles that environmentalists love to hate.
But don't look for the awkward conflict between Ford's environmental policy and its bottom-line reality to be spotlighted at the glitzy Detroit auto show next month. Ford will showcase new cars such as the edgy Focus subcompact and a retro-redesign of the Thunderbird. But Ford's biggest model of the year, the Excursion, won't be on display. Although executives are confident their new SUV will sell out, they worry its imposing presence could overshadow the environmentally friendly image they want to project. "The Excursion isn't a thing you want to roll out with trumpets and brass bands," says one insider.SAFETY FEARS. For now, the jumbo Excursion is just a target for those who fret about Americans' growing love affair with big SUVs. Those vehicles burn more gasoline, which pumps out carbon dioxide, a greenhouse gas believed to be a leading cause of global warming. And at 230 inches, the Excursion will be 10 inches longer than Chevrolet's Suburban, currently the largest passenger vehicle on the road. It will dwarf other big SUVs such as the Chevrolet Tahoe, GMC Yukon, and Dodge Durango. That has safety advocates worried that the six-foot-tall Excursion will be particularly deadly when it slams into much smaller vehicles in traffic accidents.
The Excursion will also stand out in another way: It will be exempt from federal regulations aimed at curbing gas-guzzlers. The nine-passenger model is so large it won't even be classified as a "light vehicle"--a category that normally includes SUVs, pickups, and minivans. That means it will avoid federal fuel economy standards requiring an auto maker's light trucks to average 20.7 miles per gallon. Ford, therefore, won't have to worry about the Excursion dragging down its fleet average.
With American car buyers snapping up SUVs and paying historic low gas prices, environmentalists have had no luck persuading Congress to put tougher mileage standards on light trucks. So now they're counting on pressuring Henry Ford's 41-year-old great-grandson. When he was named chairman in September, Ford was quick to highlight his plans. "The environment will become like quality," he said. "It's a prism through which we will look when we make product decisions." Environmentalists plan to keep him to his word. "In order for Bill Ford to put his environmental vision into practice," says Daniel Becker, a director of the Sierra Club, "he'll have to move Ford away from the vast gas-guzzling vehicles they're currently making."INTO LEATHER. That would be tough. No auto maker in the world makes as much from sport-utilities as Ford. Last year, it banked $5 billion in pretax earnings from SUVs--57.5% of its total. And SUVs account for nearly one-fifth of Ford's total vehicle sales, up from 5% a decade ago. Indeed, Wall Street predicts the Excursion will be another smash hit for the company that leads the sport-utility race with 27% of the U.S. market.
Ford has won over SUV drivers with big-engine power, car-like driveability, and luxury amenities such as leather seats. The Excursion, with an expected price tag of up to $50,000 and a beefy V-10 engine, will appeal in particular to those with a boat or horse trailer to lug. Analysts say pretax profits on each Excursion could reach $20,000, topping a record margin of $17,000 generated by Ford's $45,000 Lincoln Navigator. In part that's because the SUV's development costs were held under $1 billion by building it on an existing super-duty pickup frame. If only 50,000 Excursions are sold annually, it will pay off in the billions. "This is a great business plan," gushes analyst Maryann N. Keller of Furman Selz.
Ford, an avid fly fisherman who sits on the board of environmental advocacy group Conservation International, doesn't see his green goals as being incompatible with roaring SUV sales. "It's a delicate balance between what the customer wants and being completely environmentally driven," he says. And having blinders on is a recipe for disaster, he contends: "You can make a completely clean vehicle, but if it sits unsold on the dealer's lot it's not helping the environment, either. We just have to make these vehicles cleaner and cleaner every year."
Ford did just that this year, outfitting its SUVs with beefier catalytic converters, allowing them to spew as little smog as clean-running cars. Ford's high-tech, multivalve truck engines also make it easier to clean up emissions because they burn fuel more efficiently. That puts Ford in a much better position than General Motors Corp. and DaimlerChrysler to meet tough new pollution standards California is imposing and federal officials are considering. Boasts CEO-designate Jacques A. Nasser: "We've demonstrated that we're on the leading edge of ecology by making our SUVs as clean as our cars."
That's not how environmentalists see it. With the Excursion getting less than half the mileage that Ford cars average, they contend that the auto maker's SUVs are nowhere near as green as its cars. "The biggest single step we can take to curb global warming would be to use less gas," says the Sierra Club's Becker.RAGING DEBATE. The Excursion might never have hit the road, some company insiders say, had Bill Ford been in charge when its development was approved in 1996. Ford waves off such speculation, but company insiders say there was a raging debate over the Excursion. Initially, planners intended the behemoth to be a bare-bones SUV sold only to commercial fleets. But when the Ford Expedition became a runway hit--signaling that the market for large SUVs was growing faster than expected--executives gave the green light to make the Excursion an upscale rival to Chevrolet's Suburban. "At first, a lot of people worried that it would be politically incorrect," says an insider. "But when they saw the profits coming from the Expedition, that made the decision easy."
Indeed, Ford is struggling to keep up with insatiable SUV demand. Its SUV sales are up 12% this year and are expected to top 700,000 vehicles for the first time. Customers are waiting 12 weeks for delivery of a Navigator at Steve Kalafer's Lincoln Mercury dealership in Flemington, N.J. He predicts the Excursion will be a sellout, too. "There is a ready market of bigger-is-better SUV buyers," explains Kalafer.
Bigger also means fatter profits. Ford's success with sport-utilities and pickup trucks gives it a $1,100 earnings-per-vehicle edge over General Motors, making Ford the world's most profitable auto maker, says Merrill Lynch & Co. analyst Nicholas Lobaccaro. That's a key reason Ford's stock is up 71% this year, to around 55. "Sport-utilities have been a huge part of the market and they have very good products," says investor Seth M. Glickenhaus, who doubled his Ford holdings this year to 2.2 million shares.
But when the curtains pull back on Ford's new lineup at the Detroit show, the Excursion will be conspicuous by its absence. Despite the auto maker's environmental pronouncements, industry insiders just don't believe the big SUV can be transformed from road warrior into jolly green giant. "There's absolutely no possible way to make it environmentally friendly," says auto consultant Wesley R. Brown of Nextrend Inc. But that may not matter--when Ford execs look at the profit prospects for the Excursion, they see nothing but green.By Keith Naughton in DetroitReturn to top