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Ford downsizes to beat car-industry crisis

Ford is hoping to persuade its American customers of the charms of modestly sized European vehicles such as the Fiesta, the Focus and the Transit van as it struggles to find a way to reverse plummeting sales of its petrol-guzzling range of larger United States vehicles.

Faced with a collapse in demand for trucks and sports utility vehicles, Ford on Thursday took a one-off charge of $8-billion to write down the value of its US assets and leasing agreements. This pushed the size of its second-quarter loss to $8,7-billion.

In an attempt to find a way out of a crisis gripping all of Detroit’s big motor manufacturers, Ford is looking to the success of its European operations, which delivered a profit of $582-million.

Ford announced that it is retooling three North American truck plants to make compact European cars of a type once mocked by Americans for their paltry size and puny engine power.

”We’re uniquely positioned to bring the North American market smaller vehicles,” said Ford’s chief executive, Alan Mulally. ”We’re taking decisive action in response to a rapidly changing business environment.”

Ford is introducing six European models by 2010, including the Fiesta and the Focus, which although household names in Britain and South Africa are barely known in the US. The company is bringing to the US a version of the Transit van, beloved by small-business owners throughout Europe.

Under a programme called ”one Ford”, the company is unifying its range of vehicles, which has traditionally varied widely around the world. Senior executives believe changes in American car-buying tastes are ”permanent in nature”.

Until recently, American motorists were sceptical about small cars. The introduction of Daimler’s tiny Smart car was greeted with mirth in the US two years ago — a New York Times reporter who tried one out was advised to ”get a real car” by a police officer. But faced with rocketing prices at the petrol pump and a weakening economy, many motorists are opting for fuel-efficient vehicles. This has put US manufacturers on the back foot, handing an advantage to Asian firms such as Toyota and Nissan that specialise in nippy run-abouts.

For Ford, business has been dismal: its US operations lost $1,3-billion in the three months to June, compared with $270-million over the same period a year ago. Industry-wide vehicles sales in the US fell to their lowest level in 15 years last month, down 18% on June 2007.

Analysts cautiously welcomed the prospect of European cars re-energising the market.

”Given the trends in the US, small cars with high-performance, turbo-charged, four-cylinder engines will be very much in demand,” said David Healy, an auto analyst at Burnham Securities. ”This sector has traditionally been neglected by General Motors and Ford.”

It made sense to draw on Ford’s European experience: ”The conversion of a plant is not as much of a challenge in terms of investment and time as creating an entire new model.”

Detroit’s three carmakers have shed more than 100 000 jobs over the past three years. Ford has slimmed its workforce by 4 000 over the past three months alone.

Mulally, a former head of Boeing’s commercial aircraft division, has been under pressure to show that he can keep Ford on a stable footing. He recently abandoned a target of returning to profitability in 2009 and delayed the launch of a new pickup truck, the F-150, which had been showcased at the Detroit motor show amid much glitz in January.

One of America’s biggest car dealers praised Mulally’s efforts on Thursday. Mike Jackson, chief executive of AutoNation, said it was ”amazing” to watch the speed at which Ford had slashed production and begun switching from trucks to cars: ”The old Detroit would have taken ages to come to terms with this.” —

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Andrew Clark
Guest Author

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