Should Ford Motor Company (F) get rid of Mercury and Volvo? Jerry York, the longtime adviser at Tracinda, a company run by billionaire investor Kirk Kerkorian and which recently acquired 5.6% of all of Ford, seems to agree.
magazine, in which he spoke on May 1, he said aloud what many people were quietly thinking, namely that Ford should sell its two brands that are struggling to sell, Mercury and Volvo. York is not alone. Robert Lutz, vice president of the development group worldwide at General Motor’s (GM), caused a storm among Buick and Pontiac dealers in 2005, when he stated the obvious: GM has too many brands, and the company should consider phasing out the most weak if they are struggling to sell.
For years the city of Detroit, Michigan has made its drivers and dealers happy by offering a wide range of brands, many of which differed from each other with a simple grille or a distinctive badge of the corresponding mark. But those days have passed. People increasingly feel that in order to solve their problems, one of the first things automakers need to do is put all of their energy into making cars whose brands are still successful and getting rid of those whose sales aren’t meeting their dealerships’ expectations.
If Mercury and Volvo are also vulnerable, it is because these two brands are still struggling to sell. Over the past five years, the two brands have seen their sales decline by 36% and 4% respectively. And even though GM successfully ended its Oldsmobile sub-brand because it was unprofitable (a deal that has been accompanied by numerous complaints from dealers, journalists and customers) and even though Chrysler has dropped its Plymouth brand, there are plenty of other brands that may be divested or pulled from the market.
The problem is that it’s not that easy to get rid of or resell a brand. There are three major obstacles to this: alienating customers, irritating traders, and the huge losses that companies incur due to the layoff of workers and the closure of factories.
CUSTOMERS COULD CHANGE DREAMS
Ron Harbour, president of Troy, Mich.-based consulting firm Harbor, says what might sound like a distinct cry from outside that could amount to a far harsher decision than the one taken in the automotive industry, especially since some dealerships represent more than one brand:
‘You can look at this brand (Mercury) and say that the prices of its cars are not justifiable, but you don’t know which company buyers of these Mercury cars will turn to next. Some of them might go to Lincoln, but he’s not sure they’ll be loyal to the Ford Motor family. We could bid farewell to about two hundred thousand sales; however, in the immediate future, the managers of this company cannot afford that’, he says.
Mercury spokesman Mark Schirmer says researchers prove Mercury customers wouldn’t consider buying a car from another Ford-dependent brand. He adds that 40% of Mercury Milan and Mariner buyers are new Ford family customers- up to approximately 60% for the Mariner hybrid model. But there are also Ford’s most loyal customers among them: according to a 2007 study by the Strategic Vision polling institute, buyers of the Mercury Mariner SUV (Sports Utility Vehicle), whose average age was 53, were the youngest buyers of Mercury, compared to an average age of 52 for the entire auto industry. The average age of Mercury Grand Marquis buyers is 72.
Dropping the Mercury brand would do a lot of damage to Lincoln dealerships, which goes hand in hand with Mercury. “They’re having a hard enough time with two vulnerable brands that they don’t get rid of one of them,” Harbor said. Autodata, an auto sales data company based in Woodcliff Lane, N.J., reports that sales of Mercury cars for the year 2007 were 168,422, down 6.9 % . Sales of Lincoln cars were 131,487, representing a 9.1% increase since 2006.
GM’s story is similar, Harbor continues. ‘GM has way too many brands. But where to start ? I do not know. They already founded the GMC brand, and many Pontiac dealerships now align with GMC. So, from there, you would separate them, would you?’ he asks.
Meanwhile, to reinvigorate its most vulnerable brands, GM is revamping its U.S. brands to divide them into four sales streams, creating the Buick-Pontiac-GMC and Cadillac-Hummer-Saab combinations, while its most resilient brands , Chevrolet and Saturn, are isolated. Cadillac is by far the franchise brand that supports the luxury sector. But the GMC, Pontiac, and Buick brands all have problems that are unique to them.
But, while its sales are down in the United States, Buick is probably in better shape than the other two brands from a global perspective, thanks to its strong sales in China. Buick sales in China were 332,115 units in 2007, up 9% from 2006. Buick sales in the US were 189,791 in 2007, contributing to a 23% drop, according to the Autodata company. In the American market , Buick is at best an almost luxury brand, while in China, Buicks are large and prestigious enough to be driven by a driver, which is appreciated by the new wealthy capitalists of the country.
In the world of the automotive industry, brands such as GMC, Hummer, Jeep, and Land Rover are scrambling to reposition themselves by developing more economical prototypes. Trucks were in a strong position before oil prices took off, but now these new brands need more fuel-efficient vehicles.
VOLVO: FIX THEM, DON’T SELL THEM!
In addition, the Ford company announced last month that it was going to offload the Jaguar and Land Rover brands and hand them over to the Indian company Tata Motors (TTM) for 2.3 billion dollars. Ford adds 600 million dollars to this price, to cover the pension funds bequeathed by Jaguar and Land Rover. Ford sold the Aston Martin brand last year.
All of this makes Volvo the sole remaining marque in Ford’s previous Premier Automotive Group. Volvo is a valuable asset with a strong global brand and the best reputation for safety in the entire automotive industry. It is also committed, as is usual with Swedish brands, to respecting the environment, which is a crucial point for car sales these days. Both Ford and Volvo have dismissed the idea that Volvo is for sale.
But its cost is too high, even though Volvo cars already share the same price platform as other Ford cars. Ford CEO Alan Mulally said last November that he wanted to lower the prices of Volvo cars and make them premium vehicles. In short, he said that Ford would fix up its Volvo cars instead of selling them. Reading between the lines, many analysts have added in their minds: ‘…for now’.
Meanwhile, automakers need to accelerate their cost-sharing projects (such as GM’s SUVs that are priced close together: the Buick Enclave, GMC Acadia and Saturn Outlook) without sacrificing the differences between each brand. This idea is not new, although one feels that it is an urgent suggestion.
“The fear of death leads us to do things that it was always smart to do, but that we always refused to do”, analyzes David Cole, president of the Automotive Research Center based in Ann Arbor, Michigan .