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Automotive Industry

Fix It, Nick - Nick Scheele, Ford Europe

Automotive Industries, Oct, 2000 by Angus MacKenzie

Ford Europe is bleeding red ink, and market share continues to fall. Profits may be four years away, says CEO Nick Scheele.

Nick Scheele is a year into the toughest assignment of his career. A 34-year Ford Motor Co. veteran, born within a stone's throw of the company's British headquarters in Brentwood, Essex, Scheele made his corporate reputation running Ford's Mexican operations and his media name as the man who artfully steered Jaguar around Dear-born's political potholes. Now, he's trying to make Ford Europe pay.

Created in 1967 by Henry Ford II to streamline Ford's disparate European manufacturing operations, Ford Europe quickly became the most profitable European manufacturing company of the postwar era. By 1978 it accounted for 40 percent of Ford Motor Co.'s worldwide profits.

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As Ford's North American operations bled white in the early 1980s, losing $7 billion between 1979 and 1982 alone, it was Ford Europe's river of gold --$1 billion a year -- that kept the company afloat.

But as fireworks flashed in the sky above the automaker's European headquarters in Cologne last August to celebrate the company's 75th year in Germany, those glory days seemed a long time ago. Ford Europe has lost $1.2 billion since 1991, losing some $200 million in 1999 on a turnover of $21 billion even as the European industry basked in record sales. Ford's European market share has been slipping since 1995, and the slide is gathering worrying momentum. Internal forecasts suggest Ford will finish this year with just 8.3 percent of the European market, five full percentage points down on 1997.

Falling sales mean Ford Europe's bottom line has also been hammered by poor plant capacity utilization -- barely 71 percent last year. And Ford's traditional strength in Britain, where it has been market leader for 21 years, is now a liability. That's because the U.K. government's refusal to join Europe's single currency the euro, means the company is being hit hard by the strength of the British pound. About 28 percent of Ford Europe's cost last year came out of Britain, compared with about 12 percent for GM.

"That means they have a cost advantage relative to us of $1.2 billion," says Scheele bluntly in a recent Automotive Industries interview. "For Volkswagen, it's $2 billion. Put another way, if we had been based entirely outside Britain, we would have had a profit improvement of $2 billion last year."

One turnaround attempt, launched in November 1997 by then-Ford Europe president Jim Donaldson, has already failed. And Wall Street, wary of Ford's reliance on America's love affair with trucks to remain profitable, has written down the company's stock price by as much as 25 percent as a result. With shareholder value a top priority for Ford CEO Jac Nasser, Europe's pain is being keenly felt in World Headquarters.

Nasser last year tasked a high-powered executive team, which included Scheele and Ford vice-chairman Wayne Booker, plus vice-presidents Richard Parry-Jones, Bill Cosgrove and Jim Schroer, with developing a new European business strategy Their recommendations, presented to the Ford board last September, included a new European management team with key members to remain in place for five years. (Within two months of the failed 1997 turnaround strategy being signed off, every member of the previous management team had moved on.) More importantly, the plan also incorporated a partial dismantling of Alex Trotman's ambitious Ford 2000 global organization, to give Ford Europe autonomy over product development, manufacturing and marketing of Ford-branded products.

Ford Europe's re-empowerment is significant, but Scheele says it doesn't alter the fundamentals of Ford 2000, which replaced a regionally-based operating structure with a global one based on functions. He says the new structure retains single responsibility of product development to conserve scarce engineering resources, maintains a commitment to common best-practices, especially in manufacturing and powertrain, and will continue to leverage the scale of Ford Motor Co.

"What we've done is give far greater on-the-ground responsibility to the regions," he explains. "To me, this is a natural evolution. This is an appropriate move of the pendulum."

Product Challenges Ahead

What won't happen, Scheele insists, is a return to the bad old days when Ford Europe operated almost as an independent fiefdom -- a practice that led to cars such as the Ford Escort, which looked virtually identical in Europe and the U.S., but shared few common parts.

"People create fiefdoms, and what you have to do is make sure that the top management team is a team," he notes. Scheele meets with Nasser's other direct reports every Monday via a satellite video link, and face-to-face every three to four weeks. "This business is a team sport," he adds.

Scheele sees his task in simple terms: "We've got to get back in profit and we've got to stop market share erosion. We've got to get products out there that people really love and lust to buy." The all-new CD 132 Mondeo, which debuted at the Paris Show last month, is a critically important car for Ford -- Mondeo dominated the C/D segment with 20 percent market share in 1995, but has slumped to just 12.4 percent this year as buyers turned to newer, slicker offerings such as Volkswagen's Passat.

Automotive Industry

Fix It, Nick - Nick Scheele, Ford Europe

Automotive Industries, Oct, 2000 by Angus MacKenzie

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