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Ford dumps ‘volume at all cost’ tactics

New business: Ford Australia hopes the new Falcon EcoBoost will appeal to fleets with policies to purchase only four-cylinder vehicles.

Unprofitable rental fleet and ‘demonstrator’ sales are out as Ford steadies ship

Ford logo10 May 2012

FORD Australia has scaled back unprofitable rental fleet sales and moved away from the common practice of encouraging excess showroom cars to be registered as “demonstrators” as it strives to claw back profitability and shore up residual values.

The shift – which helps to explain the Blue Oval brand’s slide in the industry sales volume rankings against at least a couple of rivals over the past year – was confirmed by Ford Australia president and CEO Bob Graziano when announcing the company’s 2011 record $290 million after-tax loss this week (see separate story).

Describing 2011 as a year of change for Ford Australia, Mr Graziano said the company entered the year with excessive vehicle inventories.

“The decline in the large-car segment continued through 2011, and we worked to align our production to meet market demand including the management of our dealer inventory levels,” he said.

“We have walked away from less profitable business, and strategically deployed ourselves against a targeted channel and sales mix.” Asked to explain “less profitable business”, Mr Graziano said that referred to “demonstrator vehicles and lower mix of rental vehicles”.

“The intent was to focus on those channels that will help build the brand for the long run,” he said.

A scan of major rental car web sites reveals few Ford offerings – a departure from previous years when the Ford Falcon was a staple of such fleets.

However, Mr Graziano indicated that other fleet business was still on Ford agenda, with the company’s new locally made EcoBoost four-cylinder Falcon a major hope for such sales.

“Importantly, the Falcon EcoBoost will open doors to those fleets or governments that have a blanket four-cylinder policy, and we will continue to focus on driving profitable sales growth, across our full range of vehicles and improving on our business fundamentals as we move through 2012,” he said.

 center imageLeft: Ford Australia president and CEO Bob Graziano.

Mr Graziano said some of its decisions such as “down balancing” its vehicle production – cutting the daily car production rate – had incurred a significant cost.

“We are confident we making the right decisions, albeit at times tough decisions for the future of our business, and there is no doubt that the industry will continue to be challenging through 2012,” he said.

“We are continuing to invest significantly in our business, with an emphasis on more fuel efficient vehicles, and we are seeing positive share increases for Fiesta, Focus, Mondeo and Territory.” Mr Graziano declined to be drawn on whether Ford’s production cuts, new model mix and more focused retailing would propel the company back to profit this year.

“We don’t make projections with respect to our profitability,” he said. “All we can do is continue to market the vehicles we have in our showroom and continue to talk to the consumers in Australia about the great range of products Ford has.” Asked if he could guarantee that more production cuts would not be made at Ford Australian factories, Mr Graziano said: “I can’t sit here and guarantee anything. What I can tell you is that we are continuing to talk about the products we have on the back of what customers are telling us.

“We have a really terrific story here for the consumers here in Australia.” Part of that story will be the Focus small car – the new top-selling Ford in Australia this year – which switches to Thai production in the third quarter of this year.

Ford Australia CFO Mark Rearick indicated that the change in sourcing from Germany to Thailand would have multiple benefits for Ford Australia.

“We expect, in the long run, a much lower cost operating base for us, and that will allow us to continue to build on Focus (volumes),” he said.

“We don’t comment on individual vehicle profitability – we certainly have healthy margins now – but that shift will allow it to become even more competitive.” Mr Rearick said the shorter supply chain from Thailand would also improve range flexibility.

“Shortening down the supply chain by moving to Thailand makes it basically a two-week boat ride, for the vehicles to arrive, and that is going to allow us to be a lot more reactive to changes in the market place including series and powertrain type items,” he said.

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