Ford Forecast: Bright Future or False Hope?

As Foreign Profit Grows, Economy, High Oil Prices Spell Trouble at Home

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DETROIT ( -- As recently as April, Ford Motor Co. looked to be turning a corner. The automaker, which had lost more than $15 billion in the past two years, posted a surprising $100 million in first-quarter gains and said it expected to be profitable in 2009.
Ford President-CEO Alan Mulally
Photo: John Russell

Ford President-CEO Alan Mulally

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But only a few weeks later, Ford President-CEO Alan Mulally scaled back that rosy forecast. In a May 22 news conference, he said the No. 2 automaker expects to "about break even" next year.

The good news: "We are profitable and growing outside of North America, and our transformation plan in North America is working," he said. The bad news: The entire industry is being hammered by "the accelerating shift in consumer demand away from large trucks and SUVs to smaller cars and crossovers." That, combined with record-high oil costs, rising commodities and a weak U.S. economy, sidetracked the automaker's "Way Forward."

While Ford remains on target to reduce annual operating costs $5 billion by the end of 2008, it's adjusting "manufacturing capacity realignments," adding about 15% more production cuts, and adopting other cost reductions and product-mix changes.

The question is whether the trimming will extend to marketing. Ford would not say how the downward forecasts will affect its nearly $2 billion media budget, but some analysts think it's in peril.

Paring down
Jack R. Nerad, executive analyst at Kelly Blue Book, said when a company pares to that extent, ad budgets are in jeopardy. "In this hotly competitive market, any ad cutbacks could have significant effects on overall sales," Mr. Nerad said. "Our guess is that Ford will concentrate advertising on a relative few models, so this could have effects on Mercury, for example."

A look at the downward spiral of ad spending since 2005 by the nation's second-largest auto advertiser, behind General Motors, suggests more whittling is in store.

In 2007, Ford Motor spent $1.6 billion on measured media, excluding business-to-business and outdoor, according to TNS Media Intelligence -- about flat with what it spent in 2005 and down from the $1.7 billion it spent in 2006. In the first quarter of 2008, Ford spent $274.9 million in media (excluding B-to-B and outdoor) vs. $418.7 million in the same period in 2007 as it shifted personnel and waited for Jim Farley, new group VP-marketing communications, to approve proposals.

Amid budget woes, Ford is working hard to convince fickle customers. A new overarching "Drive One" campaign theme from JWT Team Detroit, Dearborn, Mich., aims to get shoppers into dealerships for test drives. In Ford's version of reality TV, employees act as brand ambassadors. An April national campaign premiered on "American Idol," starring several Dearborn-based employees in two 30-second spots. California location ads focus on the four pillars of "Drive One": quality, green, safety and smart technology. They feature unscripted, real-life interviews with Ford engineers and technical experts about their roles in creating stylish and innovative products.

"These ads are very different from most car ads," said Luis Salem, Ford media-planning and brand-entertainment manager. "We never told the interview subjects what to say. We just wanted to capture in film their passion for making great products."

In a Ford Big Drive House Party event in April, Ford owners invited friends and relatives into their homes to talk up their cars. The effort was led by new experiential-marketing manager Connie Fontaine.

Hot-selling vehicles such as Ford Focus, Edge and Escape; Mercury Milan and Mariner; and Lincoln MKZ and MKX have been Ford's saving grace in the past 18 months. But if its turnaround was imminent in April, Wall Street didn't know about it, said Douglas McIntyre, analyst at NYC's 24/7 Wall St.

"Ford's U.S. market share is less than 15%. ... Their success [in April] was based on offshore profits, but that's false hope. Domestics like Ford are trying to get offshore regions to grow faster than [here], but the U.S. is still the largest market in the world," he said. "Ford can't turn around when their customers are leaving them in droves."

That goes for the overall industry as well. Analysts predict that vehicle sales will drop to about 14.5 million units this year, from 16.1 million in 2007.
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