Ford's Luxury Effort Gathers Steam
Most of the time, Ford's (NYS: F) moves make a lot of sense, especially in hindsight. It's usually not too hard to figure out what CEO Alan Mulally and his team had in mind, because it's usually the smart call - and it usually works out well.
Adding luxury features to small cars like the Focus and Fiesta? Gotcha: That proved popular with customers downsizing from bigger cars and did wonders for Ford's margins. Unifying Ford's U.S. and European product lines to increase economies of scale and allow more investment in each model? Simple: Better vehicles plus bigger margins equals more profits.
But I admit that the Blue Oval's decision to keep Lincoln, its venerable luxury brand -- after dumping the rest of its premium brands -- is still puzzling me. But puzzling or no, the effort is gathering steam -- and the latest Lincoln is a stunner.
A big effort for a small slice of the market
I definitely understand why General Motors (NYS: GM) CEO Dan Akerson has committed to a major overhaul of GM's luxury brand, Cadillac. Cadillac has global name recognition, some solid products to build on, and GM has a golden opportunity right now to establish the brand in China, where luxury cars are just starting to take off.
That makes sense to me. But none of those things really apply to Lincoln. Ford's onetime Cadillac rival isn't a global brand; it's only sold in the U.S., Mexico, and a few countries in the Middle East. It's not a big seller, representing just 4% of Ford's 2011 sales in the U.S. And its product line consists mostly of mildly restyled Fords with fancy grills and cushier interiors.
But Ford has committed to a big effort to overhaul Lincoln, promising seven "all-new or significantly refreshed" vehicles by 2014, and saying that these new cars and SUVs will be sharply differentiated from the Ford-brand products with which they share underpinnings. Ford has even established a separate design center for Lincoln, with a staff of 200, to create a strong visual identity for the brand. And Ford spent another $150 million to consolidate Lincoln's dealer network, and more to establish a boutique financing arm and other programs to bring Lincoln's offerings into line with the leading luxury-car brands.
A lot of talk, and now a strong concept
That all sounded great when Ford executives announced it last year. And when Ford took the wraps off the Lincoln MK Z Concept, the first product of this new effort, earlier this week, I was impressed: While it shares underpinnings with the new Ford Fusion, it looks very different, both from the Fusion and from current Lincolns -- and very striking, in a timeless-classic kind of way. Ford said that the concept "strongly hints" at the new midsized Lincoln sedan that will arrive at dealers later this year, as well as at the "design future" for the brand as a whole.
That's all great. It's a very good look, upscale in a soft-edged, timeless way, and the planned eco-friendly focus for the brand seems directly targeted at Lexus, which has parlayed corporate parent Toyota's (NYS: TM) strong emphasis on green technologies into some upscale green cred of its own.
But it seems like a huge effort for just 4% of Ford's U.S. sales.
Some clues as to the motivation
Maybe it's as simple as this: Ford wants Lincoln's sales to add up to a lot more than that 4%. Ford's Mark Fields, who holds the somewhat awkward title of President of The Americas, laid out the party line in a statement this week:
The luxury piece of the industry is significant. In any given year in the U.S., the luxury segment is 11 to 13 percent of overall sales, and it is important for us to win customers in the luxury market with strong new vehicles. That is a key reason we have invested so heavily in Lincoln.
Is it really that simple? Is it really that Ford figures it should be capturing more of that 11% to 13% of the U.S. market, and that Lincoln is its best (really, only) route to doing that?
It could be. And maybe Ford's internal projections show that its anticipated U.S. sales gain will make this effort worth its while. But I wonder if something more dramatic -- something like a major rollout of the brand in Asia to bolster Ford's growing Chinese presence -- is in store. We'll find out.
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At the time this article was published Fool contributor John Rosevear owns shares of Ford and General Motors. You can follow his auto-related musings on Twitter, where he goes by @jrosevear. The Motley Fool owns shares of Ford Motor. Motley Fool newsletter services have recommended buying shares of Ford Motor and General Motors, as well as creating a synthetic long position in Ford Motor. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
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