Ford Motor Co. (F)
Ford Motor Company continues to show a commitment to growth and securing a solid future with the decision to shut down one of the companies most historic brands: Mercury. Mercury was founded in 1939 and intended to be a bridge between the mass-marketed, entry level Ford vehicles of the 1930′s and 1940′s and the luxury Lincoln models. Ford plans to take most of the resources currently devoted to Mercury and refocus those assets on growing the Ford brand and developing the Lincoln brand.
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Stock Analysis
Mercury is a well-known brand that struck a sentimental chord in many American consumers. However, 71 years of nostalgia could not obscure the fact that there was no longer a place for Mercury in the Ford fold. Mercury was a nice idea in 1939 and while the brand did produce a few outstanding designs over the years, Mercury was stuck with repackaging and marketing Ford models the majority of the time. In many instances, Ford and Mercury were selling the exact same car under different insignia. Furthermore, Ford market research shows that current demographics of Mercury customers are identical to Ford customer demographics.
Recent sales reports show that while the Ford brand is forging ahead, Mercury sales have stalled. Ford brand sales totaled 175,370 vehicles for an increase of 28% in May. Mercury sales fell 10.7% to 9,128 vehicles and Lincoln sales for that matter fell 9.5% to 7,755 vehicles. Ford sales leaders include the F-Series trucks (up 49%), the Fusion (up 13%) and the Taurus whose May sales increased an astounding 98%. There is just no place for Mercury. Ford is filling the mid-priced niche and is committed to Lincoln at the luxury vehicle level. Ford claims that the financial guidance offered in April will not be impacted by the move to shut down Mercury and no jobs will be lost. Ford also believes that no dealerships will close because while there are Ford-Mercury dealerships, Lincoln-Mercury dealerships and Ford-Lincoln-Mercury dealerships, there are no stand-alone Mercury stores. Existing outlets will simply drop the “Mercury” moniker by the end of the year while continuing to operate under the Ford and/or Lincoln brands. Ford hopes to grow the Lincoln brand through the introduction of a “C class” small car and by providing the option of an econo boost engine in all models including the Lincoln Navigator.
It is clear that Ford is doing well here in the United States, but for more insight into the future of the company, observers should shift their gaze to China. Ford recently announced recall in China to address problems with stalling. In all, 236,642 Focus vehicles will be recalled to fix the issue. Ford is handling the recall as carefully as possible in order to avoid damaging the brand name in the growing Chinese market. Also, on the Chinese front, Ford is seeking permission from the Chinese government to restructure a three-way partnership with Mazda Motor and Chongqing Changan Automobile. The companies still plan to cooperate with each other, but the move will result in a more streamlined operation.
Ford’s moves toward efficiency over the past year have enabled the company to stay afloat and actually flourish during some of the most challenging times for auto makers on record. Prior to 2009, Ford was struggling to turn a profit while selling 16 million units a year, when the 2009 slowdown dropped to a devastating 9 million units per year, Ford decided to reinvent itself rather than take government assistance or fold. Ford’s workplace innovations have given the company a major opportunity for growth as the economy improves. The end of Mercury could be one more decision that results in a new beginning for Ford.
Other News about Ford:
- China: changing Ford partnerships in Asia
- Auto sales: Fifth month of double-digit sales in 26 years
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Joshua Caucutt is long-time market follower and finance writer. Debt management, entrepreneurship and government economic policy are areas of emphasis. He regularly contributes to the Stock of the Day analysis.
