Can This Man Save The American Auto Industry?

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Although Ford Motor's new plan will hack costs, Bill Ford knows the real question is whether his company can produce cars that have the quality, style and value that drivers want. The biggest challenge is "to restore a sense of confidence, both externally and internally, in the company," he says. Despite an emotional new ad campaign that stresses innovation, the turnaround is complicated. Brands like Toyota have better reputations; their cars resell for as much as $2,500 more than American cars, according to Ronald Tadross, auto analyst with Banc of America Securities. "Ford has a revenue problem, not a cost problem. Their products just can't command enough value in the market," he says. Total sales were $164 billion in 2003; estimates for '06 are around $150 billion. Ford Motor hopes several new midsize cars with crisp styling and peppy engines--the Ford Fusion, the Mercury Milan and the Lincoln Zephyr--will help. Sales for all three have increased more than 30% each month since their October release.

Will the new designs be enough to stop the rot? Ford Motor's share of the U.S. auto and truck market has been steadily declining, from 24.1% in 2000 to 17.4% last year, while GM's shrank from 28.3% to 26.2%. To put that into perspective, Ford last year made 3.15 million vehicles, although it has the infrastructure to make 3.9 million, by Harbour Consulting's calculations. That kind of capacity utilization--79%--is hideously inefficient. The company's stock price has fallen 39% in a year--wiping out more than $10 billion in shareholder value.

Some Ford dealers complain that even its new models, like the Ford Fusion and the Mercury Milan, are still too similar. "We'd like to see more differentiation in the sheet metal, not just the inside creature comforts or the taillights," says Robert Thibodeau, owner of a major Detroit Ford dealership. Toyota, by contrast, has produced SUVs and the luxury Lexus--two totally different vehicles--even though they are built on the same platform. Some analysts argue that Ford should get rid of one of its brands, such as Mercury, and narrow its product line. The company's drab minivans may be dropped.

Ford Motor is in much better shape than GM, in part because it is smaller by about one-third in the U.S. While GM is awash in red ink, Ford Motor overall is still profitable, thanks to trucks like the F-150 and its finance and global business, which includes Mazda, Volvo and Land Rover. (Another brand, Jaguar, is losing money.) On the cost side, the U.S. carmakers are dragged down by the huge burden of benefits for retired workers, such as health care, which account for $930 of the cost of each of GM's vehicles, $560 of Ford's and only $110 of Toyota's--putting the Americans at a severe disadvantage. Ford loses $258 for every car it produces, compared with Toyota's profit of $1,698 per vehicle, according to Banc of America Securities.