Ford hopes to woo back Mondeo Man with Aston Martin styling
DETROIT (Bloomberg) -- In the 1990s, Ford's Mondeo was the company car of choice in Europe. Roomy, comfortable and conservative, it was the perfect set of wheels for mid-level executives, who became known as "Mondeo Men." Not any more.
As the European economic collapse has caused car sales to crash, German luxury brands have dropped down to the company-car market and converted Mondeo Men into drivers of the BMW 3 series, Audi A4 and Mercedes-Benz C class. Mondeo sales are off 11.5 percent this year and about two-thirds in a decade.
"If you drive the autostradas or motorways of Europe, it's full of BMW 3 series during the week with people dashing off to sell merchandise, off to meetings," said Garel Rhys, president of the Center for Automotive Industry Research in Cardiff, Wales. "Ten years ago, they would have been in Mondeos."
CEO Alan Mulally is setting out to right Ford's struggling flagship in Europe. On Thursday he took to the stage at Amsterdam's new Ziggo Dome, where Madonna performed in July, to unveil a sumptuously redesigned Mondeo to dealers, analysts, employees and the media.
In a bid to take on the luxury interlopers, Ford styled the new Mondeo to look like an Aston Martin, James Bond's car of choice and a former Ford unit.
"You've got these luxury brands dipping down into what would be considered a mainstream brand's territory," J Mays, Ford global design chief, said in an August interview in Los Angeles. "So what do you do? You make your car better-looking than theirs."
The new car is "the most premium Mondeo we've ever built," Barb Samardzich, vice president of product development at Ford of Europe, said in a statement. "It raises the bar in its segment in terms of style, technology and quality."
Mulally also rolled out a redesigned version of the Fiesta subcompact and announced European sales of the EcoSport subcompact SUV, Edge large SUV and the Mustang sports car at the flashy Amsterdam event.
Ford's private car show was aimed at demonstrating it isn't just trying to cut its way to prosperity in a region where it said it will lose more than $1 billion (790 million euros) this year.
Rather, it's overhauling its showroom to boost revenue, just as it did in North America where it earns record profits.
"We have more new products coming to the European customers in the second half of this year than we ever have in the history of Ford," Mulally said in an Aug. 28 interview in Beijing. "Investing during the toughest of times for the consumer will serve us well."
A stubborn sovereign debt crisis and collapsing consumer confidence has sent European car sales skidding to their lowest level in 17 years, according to the Brussels-based auto industry group ACEA. There's no recovery in sight until at least late 2014, according to Morgan Stanley.
Ford reported $553 million in operating losses in Europe in this year's first half after making money here in six of the last eight years.
It has been restocking its showroom over the last two years, with new versions of the Focus compact, C-Max medium minivan and Kuga medium SUV. It also introduced the new B-Max small minivan.
"Ford might be the one-eyed man in the kingdom of the blind," said Matthew Stover, an auto analyst for Guggenheim Securities in Boston. "They started refreshing their product line a long time ago and they did significant restructuring in Europe in the early 2000s."
Even so, this year has been rough, with Ford's European sales down 11 percent. Its market share in the second quarter dropped to 7.7 percent from 8.3 percent a year earlier.
It's losing ground to premium brands such as Audi and BMW, to relative newcomers such as South Korea's Hyundai and to Volkswagen, which has a better image and commands higher prices.
Nick Davies, a management consultant from Royal Wootton Bassett in England, had a Mondeo a little more than a decade ago. Now he drives a Hyundai i40.
The current version of the Ford isn't a leader in fuel efficiency or other technology, he said. "It's 6,000 pounds [$9,600, 7,600 euros] more than the Hyundai for less equipment," said Davies, 49. "For that kind of money, you can start thinking about a BMW."
In the throes of Europe's economic erosion, Ford is attempting to reverse the Mondeo's decade-long decline. The car's sales fell 65 percent from 293,654 in 2001 to 101,598 in 2011, according to researcher LMC Automotive.
Before BMW started making inroads into the company-car business, the Mondeo was already beset by "size drifting," where smaller cars such as the Ford Focus and VW Golf gradually grew in proportion and refinement, Rhys said.
For less money, car buyers could get a good-sized car with most of the features they could find on a Mondeo. Then Ford's flagship got squeezed between the luxury brands moving down and Hyundai moving up. "The Mondeo is a car where its market is withering on the vine," Rhys said.
Now Ford has re-engineered and re-imagined the Mondeo just as the European auto market is collapsing.
"You have to wonder if this is the wrong time to launch a beautiful new vehicle," said Adam Jonas, auto analyst for Morgan Stanley, who rates Ford overweight. "Is Ford going to show a dramatic improvement in results because of the Mondeo? No."
Because Ford will be spending heavily on new models and second-half results are typically worse, Jonas said Ford may lose $1.5 billion to $2 billion in Europe this year. "It could get that ugly," he said. "If they're near a billion in losses, that would be a good result."
Mulally contends now is the time to throttle up spending on new models to try to lift revenue in a declining market. That's the formula he used to revive Ford's U.S. business, revamping models such as the Explorer SUV and Fusion family car, Mondeo's U.S. twin.
Ford earned $4.14 billion in North America in 2012's first half and had an operating profit margin of 10.8 percent. "When we restructured, we actually accelerated the investment in new vehicles," Mulally said. "Providing the products that people want and value are most important."
Ford might find it easier to push product than to close factories in Europe, where strong labor unions have political backing to resist job cuts and shutdowns.
Ford is using just 63 percent of its European factory capacity and needs to shut at least one factory, Jonas said. "What they need to do is reduce capacity by at least 20 percent," Jonas said.
Ford's Mondeo plant in Genk, Belgium, is considered vulnerable, even if the new model succeeds. Ford said it used only 68 percent of Genk's manufacturing capacity last year.
The plant also produces the Galaxy large minivan and the sportier S-Max version. "We are doing everything possible right now to reduce our costs," Mulally said. "We'll have more to announce on our plans going forward. Everybody knows we need to size our production to the real demand."
The best way to improve factory utilization is to boost sales, which is what Ford plans with the Mondeo, Mays said. In addition to its styling makeover, the hatchback, wagon and sedan range will be loaded with technology, such as voice-activated cockpit controls and fuel-saving, turbocharged engines.
It will be the largest car offered with Ford's 1.0-liter EcoBoost gasoline engine, which improves fuel economy by 21 percent from the current model, Ford said. Ford will also offer a gasoline-electric hybrid version of the sedan, Mays said.
Buyers "want a technical story so that they feel good about their purchase," Mays said. "Giving them a really great hybrid story is one way to address that."
The Mondeo still won't have the cachet of the luxury brands overtaking its market, said Stefan Bratzel, director of the Center for Automotive Management at the University of Applied Sciences in Bergisch-Gladbach, Germany.
"BMW, Mercedes and Audi have the advantage of premium images; that's been built over many years," Bratzel said. "One new model is not enough for Ford to move upwards. They'll need many models and it will take a generation to move up even to where VW is at the moment."
VW's Passat sedan is priced 2 percent above a Mondeo. Jonas said the Passat is still a "better deal" because it retains 36 percent of its value after three years, while the Mondeo retains just 24 percent.
"Ford is viewed as a good, solid, non-premium brand," said Jonathon Poskitt, a London-based analyst for LMC Automotive. "To try to shift it up, well, that won't happen overnight."
Mays disagrees. He contends that the new Mondeo will shake up the staid company car segment. "We have a surprisingly beautiful vehicle in what is an otherwise mundane segment," Mays said. "I can say with some confidence it's a better-looking car than the majority of luxury manufacturers are putting on the road at the moment."