Ford has got the message: Its cars, such as new Taurus, cost too much

The Outlook

March 10, 1996|By Ted Shelsby

IN RECENT YEARS, Ford Motor Co. has spent billions -- $2.8 billion on the new Taurus alone -- to redesign its ever more expensive cars and light trucks. It appears to have spent too much.

Ford is having difficulty recouping the investment. Its return on vehicle sales in the fourth quarter last year was zero as the company barely broke even. After dismissing complaints that its vehicles cost too much, Ford appears to be shifting gears and moving toward an aggressive cost-cutting program.

The steps range from not painting the inside of ashtrays in its Explorer sport utility vehicle to the elimination of up to 6,000 product engineering jobs.

Its goal is to spend $11 billion less on new vehicle development over the next five years than originally planned.

Can Ford achieve these savings? Can it increase profitability of its vehicles?

David E. Cole

Director, Office for the Study of Automotive Transportation, University of Michigan

They definitely can.

Ford has made some mistakes in the past. Its Taurus is a more sophisticated car than the Chevy Lumina, but it costs about $2,000 more than the Lumina. That strategy is being questioned.

Our surveys show that family car buyers are becoming more price conscious. Price is the No. 1 concern with a rating of 62, and technology was down near the bottom with a rating of 5. If you look at the Lumina, it is less expensive than the Taurus. It's low-tech, and it's got lots of space.

Unfortunately, Ford did not do a good job of putting these customer expectations into its products.

As for cutting costs in the future, they will be doing a better job of reducing their proliferation of parts. They can do like General Motors did when they went from 17 different ignition systems to three.

They need to get their arms around this proliferation problem and they are moving in that direction. They used to use seven different styles of carpeting in the trunks of their cars. Now they use one. It only saves about a dollar, but these things begin to add up.

The big savings will come from the company's move away from an engineering philosophy we call cutting and trying. That's when you design something, build it and test it. If it doesn't work the way you want, you build another prototype. This takes a tremendous amount of time, and it's very expensive.

Ford, like the rest of the industry, is moving toward what we call math-based engineering -- the ability of engineers to design a car and its tooling through the use of mathematics and the computer. Computer designing not only reduces the number of prototype cars needed, savings hundreds of millions of dollars, but it reduces the time needed to develop a new car.

In engineering, time is money. If you have 1,000 or 2,000 engineers working on the development of a car and it takes three years instead of five, that translates into enormous cost reductions.

Edward Lapham

Executive editor, Automotive News

Yes, they can cut costs. They have identified what they believe they can do to fix their problem and they have already begun working on it. They call it Ford 2000. It's a program to reorganize the company's worldwide operations.

In the area of cost-cutting, Ford needs to reduce the number of platforms it produces around the world. It also has to reduce the number of engines, transmissions and a variety of other parts. That's it in a nutshell. ......TC Ford is beginning to admit that cars like their 1995 Contour and '96 Taurus may have had more content in them than they should have had. They did that based on what other successful companies were doing, including Honda with the Accord and Toyota with the Camry. Now they are reducing content to make cars more affordable.

I'm not sure the average buyer cares whether he has anti-lock brakes, European-style suspension or multi-valve engines. He would rather have the Lumina for $2,000 less, even through it is your basic rent-a-car vehicle and pretty ordinary.

David Healy

Auto analyst, Burnham Securities

I think the jury is still out on how much they can reduce costs.

It is going to be very tough to do in the short run. Their costs of developing new cars and trucks are pretty well fixed. The interesting question is, can they get their costs down in the long term? The Ford 2000 program looks very smart on paper and it can result in significant savings. One of its goals is to eliminate duplicate development costs. It looks toward developing new models and new engines only once around the world. The plan is to use the same platform, engine and transmission.

One of the things that set this program off and sent Ford Chairman Alex Trotman ballistic was when the company developed two new four-cylinder engines, one in Europe and one in North America, to do the exact same thing. I'm sure they would like to have that half-billion dollars back.

Pub Date: 3/10/96

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