Didn’t We Cover This Quite Some Time Ago?

Over at Autocar they are still getting to grips with unlearning Ford: forget the Focus, Fiesta, Mondeo, Granada, Capri and … the Maverick? Cougar? Fusion?

1976-1979 Ford Taunus 2.3 Ghia.
1976-1979 Ford Taunus 2.3 Ghia.

Eoin treated this topic in February. If you want to re-read it – and I suggest you do – you’ll find another angle than the one taken by Autocar. Matt Prior’s article finishes with these words which I will quote here: “… it’s telling, isn’t it, that Ford would like you to change your perception of it? Ford still sells a lot of cars. The Fiesta will almost certainly be the best-selling car in the UK this year, and the Focus third. Unfortunately for Ford, they’re affordable cars, which means each sale isn’t very profitable. They’re also – like most Fords – rather good. Imagine if it churned out dross. It has rivals who do.”

For me this also adds further weight to the conclusion of my March analysis.  While some shrugged their shoulders at the loss of the Granada and then the loss of the Mondeo as a volume product, the consequences are clear.

2010 Ford Mondeo TDCi
2010 Ford Mondeo TDCi

That’s why even with three very respected and popular cars, Ford is struggling to break back into the territory of higher price points. That can only be done by changing perceptions, hence the unlearn schtick. Actually, it’s done by offering compelling products that justify the price. Unfairly, the Mondeo has actually been a fine product and apart from the controversially styled last generation, the Granada line of cars was also good as well.

Somehow Ford’s customers felt cheated by the fact that the cars they could get for much less than a BMW or Audi were not built to precisely the same standard, but they still offered a lot (as Myles Gorfe would also say). The problem with unlearning Ford is that it runs down the value accumulated in decent cars such as the Fiesta and Focus while not offering very much in return. No matter which way they proceed, Mustangs and GTs are not going to matter as much to the bottom line as selling useful, mainstream cars in the price points in the range ten to twenty thousand pounds higher than where they are selling right now. The same goes for Opel. And Peugeot and Renault.

Author: richard herriott

I like anchovies. I dislike post-war town planning.

7 thoughts on “Didn’t We Cover This Quite Some Time Ago?”

  1. Quite rightly, the Autocrat writer touches on the real reason mid range players are missing out on big profits: finance. Thanks to rock solid residuals, the German premium players can offer attractive monthly costs on leases and PCP plans, with the knowledge that they can make more money on the backswing selling the car as Approved Used. The only reason those residuals are rock solid is because the cars do not exit the manufacturer’s sphere of influence until they are sold on for a second time, giving the manufacturer a huge influence on used market prices. The whole thing is an artificially inflated bubble, of course, but it seems set to grow without end.

    1. Good point, well made. Car finance seems to be one of the biggest factors in the changes the automotive landscape has undergone in the last 20 years.

    2. Car finance is one point, the other one is the shift from private persons to fleet managers who make buying decisions.

  2. Is possible the high residuals of the usual suspects is a function of them buying the cars back once and thereafter setting the first resale value?
    If controlling residuals was that easy they’d all do it right?

    1. Except the sad but undeniable truth is that many people would rather have a secondhand BMW rather than a new Ford. And at the other end many people would rather have a new Dacia than a secondhand Ford.

      The colour is Sahara Beige by the way. Actually I think I said that before somewhere on DTW. I believe it originated in the States in the 60s, but for me it is the quintessential 70s hue.

    2. They all do it to a certain extent, but the premium players have more wriggle room.

      Say for example that after all costs are taken into account, Ford may make 2% profit on a car, and BMW 4%. On a £15k transaction, Ford will make £300 and BMW £750. Except BMW sells more cars for £30k, so they’re actually making £1200. Ford would have to sell a lot of cars to make up the difference.

      Then there is finance. This is calculated from the list price, plus say 6% APR, plus a fee. Most finance is offered from companies allied to the manufacturer, so that’s another 6% per year, minus costs of course, so say 3% plus any “admin fees” lumped on top.

      When the BMW driver trades in after three years, the likelihood is that they’ll either being kept afloat by a huge balloon, or if they’re leasing will have no cash to put down, and will probably buy another BMW. The Ford driver however is probably cross shopping their next purchase with a Hyundai, so will want to see incentives – “cash on the hood”, as the Americans call it, or a lower monthly. That’s another slice of margin gone.

      BMW then shoves their car out on their Approved Used scheme. There are a lot of 320ds in the world, but they’re all in the dealer network, so BMW charge mega money and people will buy them thinking they’ll get better service and a better car. They won’t, but they’ll be charged for it anyway. Meanwhile, the £15k Ford is back on the lot in the £8k bear pit, with people financing their own personal loans and trading in cars that are not worth the dealer’s time.

  3. Residuals are the key to this. Nothing else affects resales. If the non-prestige makers want to secure their business, address every thing related to resale value.

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