Monday, Nov. 24, 1986

Ford Slimmed Way Down and Styled Up

For the moment, Detroit's perennial No. 2 is enjoying a turn at being undisputed No. 1. In terms of performance and prestige, Ford is on a roll. While the automaker (1985 sales: $52.8 billion) is only about half the size of General Motors, its projected 1986 profit of $3.1 billion is expected to top GM's for the first time since 1924, probably by a margin of $350 million or so. "Ford is the shining star of the automobile industry now," says Jack Kirnan, an expert on the field for the Kidder, Peabody investment firm. The popular Ford Taurus and Mercury Sable have emerged as the pace cars of U.S. automotive design, thanks to their distinctive curves. On the financial side, Ford has slashed its excess automaking capacity and boosted worker productivity.

Ford's stunning resurgence is largely the product of its 1980-82 trauma, during which the company lost $3.3 billion. Ford's dire situation inspired its leaders to make the kind of long-shot gambles that few automakers would risk under normal circumstances. The decision to cut back dramatically the company's factory capacity has succeeded in lowering Ford's fixed expenses so that its North American operations now make a profit after selling just 2.1 million vehicles a year, 30% fewer than necessary in 1980. Ford has not opened a single new U.S. plant since 1980 but has refitted old ones with automated equipment. The reduced capacity means that Ford's inventory may run short during a boom, but it ensures that the company will not be awash in excess autos during a bust.

The most visible legacy of Ford's hard times is its aerodynamic Taurus and Sable autos. At the turn of the decade, Ford's cars, like the boxy Fairmont, were literally so square that the company decided it would have to do more than just try to catch up with the European styles that most automakers were copying. Ford chose to jump way ahead, taking the risk that it might come up with another Edsel. Instead, Ford's roundish, so-called jelly- bean designs have enticed car buyers who had abandoned domestic makes for more voguish foreign nameplates. First came the restyled 1983 Thunderbird and Cougar coupes and the new 1984 Ford Tempo and Mercury Topaz compacts. When the Taurus (base price: $10,650) and Sable rolled out last December, they became instantly trendy among an important target group: young professionals and growing families. Ford expects to sell about 325,000 of the cars during 1986, an impressive first-year performance. Says Ford Chairman Donald Petersen: "Style attracts. It draws you or me in to take a look. Then the other important ingredients come through."

Quality is the main ingredient Petersen has in mind. While all the Big Three automakers have boosted the dependability of their cars, Ford has perhaps made the biggest issue of it. Known for turning out some inferior vehicles during its troubled years, Ford says it has increased the dependability of its autos 50% since 1980 by tightening its standards for parts suppliers and getting employees involved in decision making, among other techniques. Reliability will continue to be an important goal in Detroit, since the U.S. auto industry's quality levels still lag behind Japan's. According to the California consulting firm J.D. Power & Associates, the Big Three's cars are now 75% as reliable as Japanese cars, up from 50% in 1980.

In keeping with its desire for low overhead, Ford has become increasingly reliant on foreign partners and subsidiaries for supplies of everything from parts to design ideas. Ford encourages its allied companies to specialize, thus creating "centers of excellence" instead of duplicating the same skills in each location. For example, Ford has engaged Japan's Mazda to design the 1988 successor to the Mercury Lynx subcompact.

Some Wall Street investors contend that Ford may be turning into more of a marketing and importing company than a manufacturer. The experts fear that Ford, by subcontracting so much of its work, could conceivably become a hollow firm lacking the skills to build a car from start to finish. Ford imports its luxury Merkur from West Germany and intends to bring in other autos from Mexico, Australia, Brazil and Taiwan. Next year Ford plans to begin importing a minicar called the Festiva, which will be manufactured by Kia, the automaker's South Korean partner. Ford just missed winning another major ally when it failed two weeks ago in an estimated $2 billion bid to buy Italy's Alfa Romeo, the ailing manufacturer of sexy sports cars. Alfa's current owner, Italy's government, decided to sell the company to Fiat instead.

Ford may be shopping for other businesses as well. After four profitable years, the automaker has amassed a cash hoard of $8 billion, more than enough to finance research and development for several years plus another major acquisition. Last week the stock market buzzed with rumors that Ford was planning to buy the Charles Schwab discount brokerage firm or Lockheed, the aerospace company.

The biggest uncertainty about Ford is what the encore to the Taurus and Sable breakthrough will be. While those cars were conceived during Ford's risk-taking days, the profitable company could conceivably lose its daring touch. The pressure will increase as Ford's aerodynamic styling becomes more widely copied and thus less distinctive. Before long, Ford will have to come up with a suitably dramatic successor to the Tempo and Topaz, which have already started to look a bit stale in comparison with their sleeker cousins, the Taurus and Sable.

Ford has many strong products, however, that will help the company make a smooth transition to the next generation of vehicles. Ford hopes its Escort subcompact, the second-largestselling car in the U.S. after the Chevrolet Celebrity, will continue to haul in profits until the early 1990s. Moreover, Ford's truck sales, which represent 40% of the company's U.S. vehicle business, have jumped nearly 10% since last year because of the roaring popularity of pickup trucks and four-wheel-drive vehicles. For the next several years, at least, Ford's good times are likely to keep on truckin'.

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