Behind the spin: Ford

THE DILEMMA: Just how much mileage is left in Ford, founder of the modern car industry?

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Last Updated: 31 Aug 2010

The company has just recorded its worst deficit for 14 years. A cyclical blip, some might say, but its crisis is symptomatic of an American car industry that finds it hard to accept the possibility that the internal combustion engine might not be around for ever. Ford went $5.8 billion into the red in the third quarter, thanks to a huge cost-cutting programme - undertaken in response to the rising petrol prices that are pushing consumers away from SUVs to the cheaper, greener cars in which Asian manufacturers such as Toyota and Honda specialise. On the surface, Ford is making all the right moves, but this crisis is much bigger than any five-year plan. Is Ford up to the challenge?

THE SPIN: 'I think the most important thing we can do is concentrate on our plans to restructure this wonderful company to operate on lower volumes - and to do it as quickly as we can,' said Alan Mulally, Ford's new CEO. The company is 'committed to dealing decisively with the fundamental business reality' - which is that 'customer demand is shifting to smaller, more efficient vehicles'. It's a shame then that Ford is about to launch its new Edge model - a midsize 'crossover' SUV.

THE STRAIGHT TALK: Ironically, Ford's bottom line is taking a battering from its costly cost-cutting plan. By 2008, it aims to reduce expenses annually by $5 billion, through 45,000 job cuts in North America and the closure of 16 factories. Ford also hopes to sell off some of its better-known premium assets. This year, it mooted the idea of putting Jaguar on the market but decided against it - some critics say because it couldn't find a buyer. Now James Bond's favourite car brand, Aston Martin, valued at about £1 billion, is up for sale. This sum is just a drop in the ocean, though, and unless Ford can boost its turnover (down 6% year-on-year for the third quarter), reduce costs and come up with some serious and viable alternatives to the petrol engine, the more efficient and nimble manufacturers will overwhelm it.

THE VERDICT: Things will get worse before they get better. Ford hopes to turn a corner in 2008, reaping the benefits of its radical restructuring, but '07 will be a difficult and critical year. Beyond that? It's hard to imagine Ford flourishing if it stays where it is. 'History is bunk,' said Henry Ford, 'it's tradition. We don't want tradition. We want to live in the present.' But what Ford really needs to do is to look into the future.

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