Ford Admits Strategic Errors

Turnaround Chief Lobbies for Easing Trade Restrictions

Ford executive Mark Fields tells the U.S. Chamber of Commerce that the company is fixing its over-reliance on SUVs. (By Lucian Perkins -- The Washington Post)

Ford Motor Co. turnaround chief Mark Fields acknowledged yesterday that the company made strategic missteps in recent years with its over-reliance on sport-utility vehicles, leading to the No. 2 automaker's current financial crisis.

Fields, in Washington to meet with legislators and speak to corporate leaders, also called on lawmakers to help level the playing field with Ford's international rivals.

In a speech before the U.S. Chamber of Commerce, Fields, president of operations in the Americas, said Ford grew too dependent on sales of gas-guzzling big trucks and SUVs and paid too little attention to consumer trends.

"We grew so dependent upon [SUV] success that we didn't look far enough beyond the horizon, tracking the trends, knowing our customers, and seeing the day when they might want something else," he said.

Ford is struggling with a difficult turnaround. Fields, who was tapped last year by Ford Chairman William Clay Ford Jr. to lead the automaker's revival, said the company's mistakes represented "Ford of the past, not Ford of the future." Fields said Ford will concentrate on developing hybrid technology, hydrogen-powered vehicles and vehicles capable of burning biofuels. He urged oil companies and the government to help expand retail distribution of ethanol with incentives, such as tax credits for "flex-fuel" cars that can run on 85 percent ethanol.

In the first quarter, Ford reported a loss of $1.19 billion, the worst loss for the company since 2001. In the same quarter, General Motors Corp. posted a profit, a sign of initial progress in its turnaround. GM is closing in on a comprehensive deal with the United Auto Workers and its former parts supplier, lessening the likelihood of a debilitating strike.

David Healy, analyst at Burnham Securities Inc., said Ford's turnaround plan is going slowly. "I don't like what I see at Ford right now. Their new model plans are in a shambles. We don't see anything new until the end of the year so I think they will have difficulty keeping their overall market share flat or stabilized without heavy incentives."

In his speech, Fields reiterated that Ford isn't seeking a federal bailout but that he and others, including GM chief executive Rick Wagoner, are turning to Washington for help in their struggles against the rising market share of international rivals.

Fields called on federal officials to press South Korea to lift trade barriers. He said fewer than 4,000 U.S.-built vehicles were permitted to be sold in Korea while Korean brands exported 730,000 vehicles to the United States.

Korean officials have previously said that their government does not discriminate against U.S. vehicles, noting that the customs tax on imported vehicles is lower than a similar tax levied by the European Union. They also have said that while the market share of imported vehicles in Korea continues to rise, many Korean consumers consider most U.S. vehicles too big.

The United States is negotiating a new trade agreement with Korea that would gradually reduce barriers between the two countries, similar to the North American Free Trade Agreement among the United States, Canada and Mexico. Earlier this month, Wagoner complained that Japan is manipulating its currency for trade advantages.

So far, the automakers haven't had much of a reception in Washington. In an interview earlier this year, President Bush called on the automakers to build more relevant products and nixed the idea of a large-scale government bailout. Bush also has postponed a meeting with industry executives twice. The meeting is likely to happen this month, according to a source familiar with the planning who spoke on condition of anonymity because the date has not been announced.

Fields, a veteran of Ford's global operations in Argentina and Britain, is credited with turning around Mazda Motor Corp., which is partly owned by Ford. He has pledged to return Ford's North American operations to profitability by 2008. As part of the plan, Ford is cutting 30,000 jobs by halting operations at 14 manufacturing factories through 2012, including seven big auto assembly plants.

Ford is paying for its strategic stumbles of the past. Its long-term debt has been downgraded and bond-rating agency Fitch issued a report examining the prospect of a Ford bankruptcy. Ford's vehicle sales have fallen this year, led by declines in sales in the high-profit categories of SUVs, pickups and minivans.

The automaker has a higher level of inventory than the industry average and twice as many as cars and trucks on the ground as Toyota Motor Corp., according to Autodata Corp. Ford is responding by cutting production in the third quarter.

Healy, the Burnham Securities analyst, said GM has been able to shake bankruptcy speculation with its plan to sell off its GMAC finance subsidiary and stabilize a profit slide with new SUVs and a forthcoming line of pickup trucks. He said GM's bond ratings are likely to move up once the GMAC deal closes. He said the bond markets have already responded to improving conditions at GM by pushing up GM bond prices.

Ford's larger truck-based SUVs have been hammered by high gas prices and competition from the newly designed models from GM. Also, GM's new line of pickup trucks could be a challenge for Ford. The Ford F-Series pickup truck has long been the top seller in the market and an important source of Ford profits.

Fields remains upbeat about other new models. He said a new set of fuel-efficient sedans led by the Ford Fusion were selling well in the U.S. and the company has high hopes for a new crossover sport-utility vehicle called the Ford Edge.