U.S. car companies go back to black

U.S. car companies go back to black
By David Bailey Reuters - Sunday, March 30 04:21 am

DETROIT (Reuters) - Henry Ford, who created the automotive industry's first mass-market hit with the Model T a century ago, was a proponent of radical simplicity.

In fact, Ford became famous for saying his customers could have the $825 (414 pound) Model T in any colour -- so long as it was black.

In the century since the first Model T in 1908, Ford's vision of top-down efficiency has been swamped by thousands of feature and colour combinations on new cars, trucks and SUVs.

The result, executives say, has been higher production and inventory costs and headaches for customers and dealers in sorting through a complex matrix of choices.

Now, Ford Motor Co and other embattled U.S. automakers are going back to black, embracing the spirit of Ford's notion in response to mounting losses and the risk of a deeper downturn in the United States, the world's largest market for new cars, in 2008.

Ford Chief Executive Alan Mulally said he was amazed by the number of variations Ford offered when he arrived at the No. 2 U.S. automaker from Boeing Co in 2006.

"I was looking at the (Lincoln) Navigator console," Mulally said. "We have 128 different options you could choose on the console. That's just the console."

With so many variations, a customer inevitably will want a vehicle that is not in stock, leading to a frustrated customer and pressure on the dealer to offer a discount, Mulally said.

"They're unhappy and we're losing money," he said of Ford, which posted losses of $2.7 billion in 2007 and $12.6 billion in 2006.

Ford's chief of marketing, Jim Farley, who was hired away from Toyota Motor Co last year, said he was stunned to find that Ford was offering 100,000 combinations of options on its entry-level Focus sedan. Some 80 percent of Ford's sales came from just 4,000 of those combinations, he said.

In response, Ford has cut complexity by reducing the number of "buildable combinations" of the 2008 Focus by 99 percent. On the 2008 Expedition, it has cut combinations by 95 percent.

"Coming from Toyota, I can tell you that the opportunity is there to reduce the complexity of our line-up," Farley told analysts recently.

It's a similar story at Chrysler LLC, where sales chief Jim Press -- another high-level defection from Toyota -- has also pushed the struggling automaker to simplify.

"Previously, we offered too many options," Chrysler Chief Executive Bob Nardelli told reporters. "That resulted in too much complexity in the plants that build them, too much confusion for the dealers who order them and no added value to the customers who buy them."

Nardelli said Chrysler had cut ordering complexity by 93 percent over the past two years by dropping some options and repackaging others.

Chrysler, which lost $1.6 billion last year, plans to go further, cutting models and trimming dealers. That represents a stepped-up restructuring under Cerberus Capital Management LP, which bought an 80 percent stake in the automaker in 2007.

LESS IS MORE

General Motors Corp is also paring variations to cut costs and expects to have the vast majority of vehicles on shared global platforms within two years, said Jon Lauckner, GM's vice president of global program management.

"It has tremendous advantages," he said. "Obviously we're going to leverage one of our strengths, which is our scale."

GM, the largest U.S. carmaker, increasingly markets vehicles made on common platforms under different names in markets around the world with only minor changes, a process that saves money that can be rolled into product development.

The first GM vehicle with the global architecture -- the Opel Vectra -- will debut at the London auto show and will be on the road in the fall. The next GM vehicles to be built with the global structure will be small cars from the automaker's Korean affiliate Daewoo, Lauckner said.

Japanese automakers are widely seen as leading the way in cutting costs by sharing unseen parts across vehicle lines and reducing complexity.

But Al Castignetti, Nissan Motor Co's division manager for North America, said Nissan also sees more room to simplify in the U.S. markets.

Nissan dealers, he said, have said they feel weighed down by having to deal with 250,000 ordering combinations in some cases.

"We've gotten rid of a decent amount of complexity, but we still have a way to go," Castignetti said in an interview.

Nissan's Altima and Maxima models were two of the biggest offenders and have gone through major reductions of options such as trim and colour and even the platforms, he said.

About 70 percent of Nissan sales in a given car model are sold in the same way because buyers tend to choose the most common options, Castignetti said.

John Tulloch, vice president of client services for marketing agency George P. Johnson, said automakers could sell the "less is more" concept to car buyers if the savings are used to improve remaining models and reduce sticker prices.

"Customers could get a better price beyond incentives or could get better packages, such as a satellite radio or higher end safety features," Tulloch said.