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Ford Cutbacks Spare Luxury Auto Group

The Irvine-based unit is going strong despite its parent's woes.


As Ford Motor Co. carries out a massive restructuring that involves shuttering plants, cutting production, eliminating products and slashing 35,000 jobs from its payroll, the bloodletting will affect the Ford family around the world--except, it seems, in Southern California.

If Ford has a sacred cow, it is its Premier Automotive Group, whose North American headquarters was moved to Irvine late last year and whose London-based president, former BMW executive Wolfgang Reitzle, has seen his empire swell even as Ford Chairman William Clay Ford Jr. was drafting his corporate downsizing plan. Reitzle, in fact, has the chairman's blessing to expand PAG aggressively even as other Ford units are contracting.

The strategy makes sense to most industry analysts, who point out that the premier group's vehicles--from Aston Martin Lagonda's hand-built $228,000 Vanquish at the high end to Volvo's safe-and-sane sedans--are among the most profitable in Ford's stable. Moreover, the luxury and performance car markets typically are among the last to feel the pinch of a weakening economy--and are among the first to reap the rewards of a recovery.

Thus, though the Ford and Mercury brands probably will see their market share shrink again this year, the PAG marques--with the exception of a rebuilding Lincoln--are expected to grow.

"PAG is the least problematic part of Ford,'' said analyst Rod Lache of Deutsche Banc Alex. Brown. "The luxury end of the market has the highest return, so it makes sense to pursue growth in that area."

Ford earns an estimated $5,500 a vehicle from its luxury lines, about the same as it makes on big pickup trucks and sport-utility vehicles but double the profit on mainstream cars. The company has said it intends to push its worldwide luxury vehicle sales to 1.2 million units a year by 2006, up from about 850,000 last year.

With the exception of the loss of one model at Lincoln, PAG was conspicuously absent as Bill Ford--as he prefers to be called--ran down his hit list Jan. 11. Even elimination of the Continental model from Lincoln's lineup is not a blow to the group. In fact, Ford's domestic luxury brand is adding models, undergoing a brand redesign and probably will resurrect the Continental in a few years as a new flagship model.

Vic Doolan, president of PAG's North American operations, noted that Lincoln will get a new small SUV called the Aviator this year and that each of its remaining models, including the Navigator SUV and the Town Car sedan, has been redesigned for the 2002 model year.

Even Mercury--which is part of Irvine-based Lincoln Mercury but not part of PAG--is faring well in its association with the premier brands. Though two of Mercury's models will be eliminated as part of Ford's recovery plan--the slow-selling Cougar sports coupe and the aging Villager minivan--the brand is getting a new van and a new performance model called the Marauder.

Mercury insiders said the marque remains a moneymaker for Ford, and Bill Ford, Doolan and Brian Kelley, president of the Lincoln Mercury unit, all have said publicly in recent weeks that Mercury will stay.

For one thing, Ford could never make up with Ford models alone the sales it would lose by eliminating Mercury.

Mercury dealers sell 115,000 units of the full-size Grand Marquis sedan a year, 105,000 mid-size Sables and 45,000 Mountaineer SUVs, said Jim Hall, Detroit-based auto industry analyst for AutoPacific Inc. With virtually no advertising outlay on Mercury's part, the Grand Marquis, popular with older male buyers, regularly outsells its twin, the Ford Crown Victoria.


PAG Workers in Good Spirits

So while faces are long at Ford's world headquarters in Dearborn, Mich., and at manufacturing plants around the globe, the mood among PAG and Lincoln Mercury employees, including about 1,000 at the Irvine complex, has been fairly cheerful--insiders describe it as relaxed and relieved. In all, Ford has about 1,300 employees in California, most in Irvine and at its Western regional office in Anaheim.

Plans for PAG call for introduction of 25 major new or redesigned models during the next five years. The group's five marques--Aston Martin, Jaguar, Land Rover, Lincoln and Volvo--accounted for about 18% of Ford Motor profit in 2000 but are expected to contribute a third by 2006, said Nick Scheele, the auto maker's chief operating officer.

One reason the corporate parent considers PAG to be untouchable despite disappointing U.S. sales from several of its brands last year--Lincoln was down 17% and Volvo's car sales dropped 12.8%--is that acquiring and beefing up the Eurocentric collection in the past decade represents an expenditure of about $15 billion. The company isn't going to win points with investors for junking that kind of investment.

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