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Think smaller, says Ford

New: XR versions of Ford's new FG Falcon only recently hit showrooms.

Ford battles to rebuild as large-car slump bites into FG Falcon sales

Ford logo22 Jul 2008

FORD Australia wants to change the way it is perceived by Australian car buyers as it comes to terms with a declining large-car market, despite the recent launch of the new FG Falcon range.

Company president Bill Osborne said last Friday that, while he was pleased with the sales performance of the FG Falcon in its first two months on the market, he wanted Ford to be known for more than just “large cars and trucks”.

A new global branding campaign is under development that will be adopted in Australia, where a more concerted push is about to start on its admittedly under-performing small and medium cars.

This has already been evidenced in the recent decision to cut back Ford's commitment to the V8 Supercar race category to free some funds, resulting on the controversial decision to drop long-time Ford hero Dick Johnson’s team as well as the very successful 888 operation of Craig Lowndes.

“People think of the Ford brand as a large-car and a truck producer,” said Mr Osborne. “They don’t think of us as a small-car producer.

“It’s my job to launch what I think is a campaign to make the brand more relevant to those buyers. That is what we’re working on.

“The long-term plan for Focus is to drive better consumer consideration through a branding campaign and to make ourselves more competitive with government fleets by bringing production here to Australia.”

In the shorter term, the Ford chief promised “a more aggressive retail program in the second half of this year” on both Focus and Fiesta, which he said had not kept pace in the growing small and light car segments.

Mr Osborne, who took the helm less than six months ago, also said that Ford Australia could still make money with the Falcon even though the large-car segment had dropped to only 10.6 per cent – less than half what it was just five years ago and two percentage points lower than what his predecessor said was unprofitable for local production.

Although a huge drop-off in fleet sales, especially by governments, has hurt total Falcon volumes, the upside is that the model mix now favours more up-spec model variants that carry a higher profit margin for the embattled car-maker.

Mr Osborne said that Ford is pressing ahead globally with large cars and that the Falcon has a long future in Australia, but stopped short of assuring there would be an all-new platform for the next-generation model.

27 center imageNevertheless, he said that comments made recently by global product development chief Derrick Kuzak – who was quoted as saying that Ford was rethinking its plans to develop a new global rear-wheel drive large car platform – have been misinterpreted.

Mr Osborne said that the important thing Mr Kuzak said was that development is continuing with the new platform, in which Australia is “a participant from an engineering standpoint” and a candidate to be the project leader.

“Derrick said that that work continues on the rear-wheel drive platform,” said Mr Osborne. “I think his comments may have been slightly misinterpreted. He may have been discussing the specific alternatives that are under review, but I think that his ultimate statement is that work continues on a global rear-wheel drive platform, even though segmentation has shifted away from large cars in Australia and to some degree in the United States.

“There’s still a great deal of growth in large cars in China and Russia, and I think the company continues to believe there is sufficient global volume in rear-wheel drive to warrant a platform study.

“I expect that there will be a new-generation Falcon, yes. I can’t tell you the form or structure of that program, but I do expect the Falcon nameplate to continue.”

Asked if a continued escalation in fuel prices could ultimately cause Ford to abandon the new rear-drive platform and force Australia to continue using the existing platform, Mr Osborne said “that’s an alternative that I’m not prepared to speculate on”.

“That’s a bit far out into the future. I’m not prepared to speculate on what might happen seven or eight years in the future … because that’s beyond our business plan period,” he said. “The near-term plans with Falcon are solid through our business planning period (which is) over the course of the next three to four years.”

The FG Falcon has not exactly set the market on fire since being launched in mid-May, with sales in June of 2416 (plus 1067 superseded BF II models) – about the same as it managed in May.

These are short of the pre-launch target of 3000-plus per month and still a long way behind the two year-old VE Commodore (4274 sales for a 36.8 per cent share of the large-car segment in June), which has been the subject of a big value-added retail offer by Holden.

While Mr Osborne does not want to start price discounting the FG Falcon just yet, he admitted that Ford is considering a retail response to Holden.

“We have been able to gain significant market share on the Commodore without responding to those discounts, so the real question for us is, ‘Do we need to respond?’ The fact that a competitor moves doesn’t necessarily generate an automatic response from us.

“Our goal will be to defend our share. We will certainly not allow any competitor to have a huge price advantage on us in the market if we feel we are not competitive.”

Mr Osborne defended FG Falcon sales, saying that Commodore was well down on the same period last year while Falcon sales were at about the same level, and that its share of the segment was at an acceptable level (around 30 per cent).

He said he expected that share to improve significantly with the rollout of the turbocharged models, which only began shipping in the last week of June.

Nevertheless, Mr Osborne did not shrink away from the reality of a depressed large-car market, saying that June's figures were boosted by “an unusually large” number of registrations of company cars and demonstrator vehicles by two of Ford's rivals who he would not name.

“We actually think the underlying market for large cars is even weaker than what was displayed in June, and that is cause for concern,” he said. “We’ve had no issue meeting our segment share objective, but the segmentation, particularly with the recent rise of fuel prices, has deteriorated even further, so we expect a weaker segment in July than we’ve seen in June.

“The big drop-off this year has been in government fleets. Only recently have we seen a larger deterioration in private buyers, so we think that’s been fuel price-related.

“If fuel prices remain stable, we’d be projecting the large-car market to remain around the 11 per cent level. If fuel prices continue to rise, our (forecasting) model would suggest further deterioration, but I don’t think any of us knows where fuel prices are headed.

“We’ve been affected commensurate with the rest of the industry by petrol prices in the large-car segment. It’s simply an industry phenomenon, not just an FG phenomenon.

“I wouldn’t say that it’s unprofitable for us… but let’s just say that it does become quite difficult for us once segmentation drops into the 11 per cent range. At that point now you’re depending on mix to gain your profits.

“Even though the segment itself is down, we have not been hit as hard as some of our competitors and we attribute that to the fact that we have a superior product.

“We consider (30 per cent) a pretty strong share given that we didn’t begin shifting the turbo variant until the last week of the month. It builds on our May performance of 31.3 per cent (and) we expect to continue to build momentum in July … due to the increased availability of turbos.”

Mr Osborne said that beating Commodore was still a goal, but he did not present a timeframe for knocking over the long-running local leader. “I’ve been in this business for 31 years and over the long run the best product wins, and I think that we have the best product.”

With governments actively abandoning the large-car segment in favour of more fuel-efficient small and medium cars, Ford Australia is having discussions about them buying Mondeo and Focus, especially as the latter will go into local production in a few years.

“Up until now we haven’t had a real strong push on Mondeo with Government fleets, but we think now is a good time re-evaluate that strategy,” said Mr Osborne. “We expect to make a strong push with Focus once it’s locally manufactured here. That also helps our costs and that will make us even more competitive in that segment.”

With the Falcon, Mondeo and Focus getting strong reviews but failing to score gold on the sales charts, Mr Osborne admitted that Ford Australia felt that the marketing has been deficient and needs an overhaul.

“You would have to say that, if you have a good product and competitive pricing, and good distribution, that the only thing left is brand. That’s why we’re spending a lot of time and effort on understanding where to take the brand in Australia,” he said.

“We’ve been spending a lot of our time and effort over the last couple of years promoting each individual nameplate and not a lot of effort in developing an overall brand strategy, so that is an area of opportunity. The fact that we’ve spent a lot of money promoting nameplates is a good thing, but I believe that we need some overarching primary brand that pulls them all together and makes the brand more relevant to today’s consumers.

“I’ve been telling people internally it’s more important to get it right than it is to get it fast. I want to avoid launching something that is purely a tagline. Whatever we do has to resonate with our employees as well as our consumers.

“And it has to be something that is supported globally by Ford. It isn’t something that will be specific to Australia (and) it has to outlast Bill Osborne. So we’ve been trying to ensure that what we do, we do right and it is a brand promise that our products, our employees and our parent company can live up to.”

He said Ford Australia has not decided what form the brand repositioning will take and they have resisted the urge to do something quickly to take advantage of next month’s Beijing Olympic Games.

“Turning around the brand is not a short-term proposition.”

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