Should Ford Motor dump Mercury
and Volvo? Jerry York, the longtime adviser to billionaire investor Kirk
Kerkorian's Tracinda,
which recently acquired 5.6% of Ford, seems to think so. According to
Automotive News, on May 1 he said out loud what a lot
of people have been quietly thinking, namely that Ford should sell its
two struggling brands, Mercury and Volvo.
York isn't alone. Robert Lutz,
General Motors' vice-chairman for global development, touched off a storm
with Buick and Pontiac
dealers in 2005, when he stated the obvious: GM has too many brands, and
the company would have to consider phasing out the
weaker ones if they didn't perform.
For years Detroit kept drivers
and dealers happy by offering a range of marques, many of which were differentiated
by little more
than a grille and a badge. But those days are gone. The growing feeling
is that to fix themselves, one of the first things automakers
need to do is concentrate their resources on the brands that still resonate
and jettison those that are underperforming.
Mercury and Volvo are so vulnerable
because sales for both brands continue to struggle. Over the past five
years the two brands
have seen sales decline 36% and 4%, respectively. And even though GM successfully
killed off its money-losing Oldsmobile division
—not without plenty of caterwauling from dealers, journalists, and customers—and
Chrysler ditched Plymouth, there are plenty of other candidates for sale
or closure.
The problem is that it's not
easy to kill off or sell a brand. There are three major obstacles: alienating
customers, angering dealers,
and incurring substantial costs for laying off workers and shuttering
plants.
Ron Harbour, president of Troy
(Mich.)-based Harbour Consulting, says what may seem like an obvious call
from the outside
can be a much tougher decision from the inside, especially since most
dealers represent more than one brand.
"You can look at it and say Mercury
is not cost-justifiable, but it's an unknown where those Mercury buyers would
go.
Some of them could go to Lincoln, but there's no guarantee they will stay
within the Ford Motor family.
You could be kissing goodbye a couple hundred thousand sales, and they
just can't afford to do that right now,"
Mercury spokesman Mark Schirmer
says research shows some Mercury customers wouldn't consider the Ford brand.
He says about 40% of buyers for the Mercury Milan and Mariner models are
new to the Ford family, up to around 60% for the
Mariner hybrid model. But they are also among Ford's oldest customers:
According to a 2007 study by Strategic Vision,
buyers of the Mercury Mariner SUV, with a median age of 53, were the youngest
Mercury buyers, vs. a median age for the
industry of 52. The average age of Mercury Grand Marquis buyers is 72.
Dropping Mercury would also
hurt Lincoln dealers, who are paired with Mercury. "They're having a tough
enough time as it is,
with two brands, without taking one away," Harbour says. Woodcliff Lake
(N.J.)-based Autodata reports Mercury sales in 2007
were 168,422, down 6.9%. Lincoln sales were 131,487, up 9.1% from 2006.
GM's story is similar, Harbour
says. "GM's got far too many brands. But where do you go first? I don't
know.
They've really been building the GMC brand, and a lot of Pontiac dealers
are aligned with GMC now. So now, would you
break them apart?" he says.
Meanwhile, to shore up its weaker
brands GM is reshuffling its U.S. brands into four retail channels, combining
Buick-Pontiac-GMC and Cadillac-Hummer-Saab, while its strongest brands,
Chevrolet and Saturn, stand alone.
Cadillac is by far the anchor franchise of the luxury channel. But GMC,
Pontiac, and Buick all have their individual
problems.
Even though its U.S. sales are
down, Buick is probably in the best shape of the three in global terms,
because of strong
sales in China. Buick sales in China were 332,115 units in 2007, up 9%
from 2006. Buick's U.S. sales were 185,791 in 2007,
down 23%, according to Autodata. In the U.S. market, Buick is a near-luxury
brand at best, but in China, Buicks are big enough
and prestigious enough to be driven by a chauffeur, which is popular with
the country's wealthy new capitalists.
Across the auto industry, brands
such as GMC, Hummer, Jeep, and Land Rover are scrambling to reposition
themselves by
developing more fuel-efficient models. Trucks were in the catbird seat
before gas prices took off, but now those brands need
more fuel-efficient vehicles.
In addition, Ford announced
last month it was unloading the Jaguar and Land Rover brands to India's
Tata Motors (TTM) for
$2.3 billion. Ford is throwing in another $600 million, to cover legacy
pensions at Jaguar and Land Rover.
Ford sold the Aston Martin marque last year.
That leaves Volvo as the sole
remaining brand in Ford's former Premier Automotive Group. Volvo is a valuable
asset, with a
strong global brand and the industry's highest reputation for safety.
It also has a typically Swedish commitment to the environment
that's a true selling point nowadays. Both Ford and Volvo reject the notion
that Volvo is for sale.
But its cost structure is too
high, even though Volvo already shares platforms with other Ford divisions.
Ford President and CEO
Alan Mulally said in November that he wants to cut costs at Volvo and
take the brand more upscale. In short, he said Ford will fix
Volvo Cars instead of selling it. Reading between the lines, many analysts
mentally added, "…for now."
In the meantime, the automakers
have to accelerate cost-sharing schemes—such as GM's platform-sharing crossovers,
the Buick Enclave, GMC Acadia, and Saturn Outlook—without sacrificing
brand differentiation.
That's an old idea, albeit one
with a renewed sense of urgency.
