Scheele: Ford’s European changes were the right thing to do

Whenever Ford Motor Co. found itself in trouble during the turbulent last 10 years, Nick Scheele, 62, took the toughest assignments, even when it meant personal sacrifice. As chairman of his beloved Jaguar from 1992-99, Scheele helped turn the quality of the British brand’s cars from a joke to a strength. The UK native could have retired happily in 1999, but Ford had other plans. Ford of Europe, once a profit machine for Ford, was in trouble in 1999 and drastically needed to be reorganized. His toughest task as Ford of Europe chairman was to stop carmaking at Ford’s plant in Dagenham, England. But the restructuring of Dagenham, now Ford of Europe’s diesel engine center, was crucial to a plan that is now bearing fruit: Ford of Europe made a profit in 2004 and 2005. Scheele retired from Ford in early 2005. These days he divides his time between his UK home in Henley-in-Arden, Warwickshire, and his US home in Hobe Sound, Florida. He spoke by phone from his house in Florida with Automotive News Reporter Bradford Wernle and Douglas A. Bolduc, editor of the Automotive News Europe 10th anniversary issue.

What are the most important developments in the European auto industry in the last 10 years?

There has been a significant decline for most European-based mass manufacturers, the advent of new players, the growth of eastern Europe and an explosion of new technology.

What has caused the decline of the traditional European volume carmakers?

It’s tied to the arrival of newcomers and the cost base. The advent of newcomers significantly raised the bar. The costs for long-established European domestic manufacturers are higher than for those that came later, such as Kia, Hyundai and Dacia. The cost pressure has clearly come from them, as has the competitive pressure. What previously supported euro-based profitability was selling to the UK. Once the euro increased in value that profit source was gone.

Western carmakers appear guilty of short-term thinking and that puts them at a disadvantage against a competitor such as Toyota. Can Western companies learn to compete better?

Toyota is publicly listed. It has shareholders. I think Western companies can compete. The key question is: Can you develop a strategy and follow the strategy? But it has to be a good strategy.

What has been the effect of Mercedes-Benz and BMW moving down-market?

The executive sector for volume carmakers went away with the demise of vehicles like the Ford Scorpio and Opel Omega. We forecast that would happen. If you recall, when we canceled the Scorpio we said there wouldn’t be a market in that sector because premium brands moved into it.

The Mondeo-Passat-Vectra segment [also known as the upper medium or D segment] has come under similar pressure. That is clear. The C [also known as lower-medium] sector has increased in size. If you look at the Golf and Focus today and compare them with similar models from 10 years ago the new cars are significantly larger.

It’s equally clear that the advent of minivans has moved a larger number of C and D buyers into minivans.

What was your most challenging experience of the last 10 years?

The big one was [restructuring] Dagenham.

The change in our European footprint was a very difficult period to go through. But, I’m convinced it was the right thing to do.

What was your biggest success?

It was the turnaround at Halewood [which went from being a Ford assembly plant to a Jaguar factory in 2000]. Most people didn’t believe Halewood could ever become a high-quality plant. The cooperation between management and the unions is something I take a great deal of pleasure in. The results were spectacular.

Are you surprised at the current state of Jaguar?

It’s very disappointing. One could analyze it to death and it wouldn’t change the situation. Jaguar has unquestionably its best sedan ever with the XJ. The S-Type is the vehicle everyone wanted to see and the X-Type has come a long, long way and is now a very good vehicle. There is a fantastic diesel in the S-Type and XJ. I find it sad there is not a concentration on all the good things Jaguar has today.

Was it a good idea to put brands together in the Premier Automotive Group organization?

Yes, I think it was. Look at the development of the Jaguar V-8 engine that was adapted for Land Rover. Most commentaries I’ve read in the specialist press say it’s much better than the BMW powertrain it replaced. That Volvo five-cylinder makes the Focus ST a spectacular vehicle. Those things could not have happened had we not had a PAG organization.

What impact is China having on the industry?

China is clearly going to be a major market and a major player. The economic surge China represents is going to put continuing pressure on raw materials prices and the availability of raw materials. Do I think China will be exporting vast amounts of cars to Europe and North America? The answer is, No. Cars manufactured in China in conjunction with Western partners and Chinese partners are a pretty small segment of the total Chinese market.

The largest sector is K cars [models that are less than 4400mm long and 1500mm wide with an engine no larger than 660cc]. What we would define as modern vehicles are confined to the joint ventures between Western and domestic Chinese carmakers. But I don’t think we’ll see many Chinese vehicles exported in the near term. We’ve seen this sort of thing before. I remember when Yugo did that. And we’ve had others. Can you produce a cheap car? Yes, you can. Is it a car that’s going to appeal to the demands of market in Europe and North America? Time will tell.

Could you reflect on differences between the European and North American industries?

You must start with the governmental policies toward CO2 and hence the price of gasoline in Europe, which is substantially higher. The US view is to impose the burden by means of CAFE [Corporate Average Fuel Economy] on the manufacturers. The European view is that fuel economy will be better obtained if there is a direct link between fuel economy and the consumer’s wallet. Over the years, that has given rise to what are essentially different industries. In Europe, the Ford Focus and Renault Megane are seen as family sedans. In the US, those kinds of vehicles are viewed as basic starter cars. That has driven an awful lot of the difference. The C-car [lower-medium] vehicle in Europe is a much higher priced vehicle. Until those differences are breached, we will have two different industries. Vehicle usage is a reflection of the fundamental difference in policy toward fuel taxation.

Do new European CO2 rules hurt carmakers such as Ford because they lump your smaller cars together with large luxury cars?

The marketplace has shifted since the initial agreement was inked. A lot of it has been caused by changes in consumer tastes. If you go back 11 years, how many V-8 engines were there in Europe? Precious few. How many large vehicles? Not nearly as many as today. You’ve got to have choice and manufacturers have to respond to that. One has got to take into account the reality of the marketplace. That reality has changed.

Before you retired, you were active in raising the issue of declining global competitiveness of European manufacturers as a result of legislative burdens. What progress has been made?

There is a huge issue of legislation impacting European competitiveness. I think it’s serious. It has always been serious. We had recommended that all legislation impacting the industry be subject to a cost-benefit analysis.

What is driving more change in European industry – consumer demand or legislation?

I think it’s driven by both, perhaps more so by consumers.

The consumer doesn’t see the benefits of improved CO2 emissions or pedestrian safety. These are largely invisible to the consumer. I don’t see too many consumers saying, I want to go to Euro 4 because I can see improved results. We do see greater use of ABS [antilock brakes], and traction control. These give tangible benefits. The consumers demanded them. That’s a significant change that has happened and will continue to happen. Frankly, most of the industry’s technology has been led by European manufacturers and component manufacturers, more than anywhere else in the world. The European consumer is pretty savvy and sees the benefits and asks for them.

Do carmakers spend more on meeting new EU rules or on new innovations for the customer?

I really don’t know the answer to that. My suspicion would be that increasingly the industry is spending it on meeting legislation. That’s particularly applicable to companies selling in Europe and the rest of the world. No other region of the world is calling for pedestrian safety, yet you have to design to comply with European regulation. But you have to say, Is that going to be the appearance I want to sell in the rest of the world? If you decide not, you run into two not necessarily congruent development schemes.

You said you think Europe has led the world in technology. Could you give some examples?

ABS, traction control, injection technology for diesels – all that has come out of European partsmakers. That’s just three examples. I could name you dozens.

How has technology helped consumers?

Cleaner air for a start. Ten years ago we were at Euro 2. Now we’re at Euro 4. It’s a lot cleaner. There’s technology applied to braking systems, adaptive cruise control, lane departure warning – all of these have happened within the last 10 years. Bluetooth phones – that’s a big change. Most people 10 years ago were not talking hands free.

How have choices expanded for consumers during the past 10 years?

Just look at the offerings that BMW and Mercedes now have. The Renault Scenic arrived and opened a whole new class. There are far more convertibles now available in Europe. There are more manufacturers. Kia was not there. Daewoo was not there. Toyota did not have any assembly plants in continental Europe. Vehicles were not coming out of Turkey. They do today. Romania also has been added as a source.

How do you spend your time now?

I’m on various boards. I’m chancellor of University of Warwick. I’m chairman of the Cambridge-MIT Institute. I’m chairman of the Prince of Wales Business and the Environment Program. I also play golf, read and go to the theater.

You can reach Bradford Wernle at bwernle@crain.com.