US car giant focuses on problems in core market

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The Independent Online

So that's one less bundle of problems in Alan Mulally's in-tray.

It is 18 months since the former Boeing executive was called up by Bill Ford and asked to step in to replace him as chief executive of the historic carmaker, but if anything the challenges facing the company have become even more daunting in the interim. The sale of Jaguar and Land Rover put another $1.7bn in the $33bn kitty at Ford, but it is a cash fund that is being constantly eroded by the demands of its loss-making US business. That core business has been hamstrung for years by poor investment in anything except the gas-guzzling SUVs that have gone suddenly out of fashion.

Meanwhile, Ford – in common with its Detroit cousins General Motors and Chrysler – has been having to funnel money for the pensions and healthcare bills of retired employees, and to pay union-negotiated wages that have been undercut by its Asian rivals.

And now there is the additional headache of the credit crisis, which is bearing down on Ford's car finance business, which lends money to buyers wanting to spread out payment, and also threatening to trigger a US recession that will undoubtedly crimp demand for new vehicles.

Mr Mulally's main focus has been on reviving its most important, mass market brands – which is why loss-making Jaguar and its British sibling Land Rover simply did not fit. "In the case of Ford, less is more," says Shelly Lombard, a senior high-yield credit analyst at New York-based bond research firm GimmeCredit. "The most important benefit of the sale is that it will allow Ford to focus its time and resources on fewer brands. Ford was never going to get Jaguar sales on track and make money on the brand, so it was a distraction at a time when management is struggling to turn its core brands and business around."

In the past three years, Ford has laid off 30,000 employees. Last summer, in an important breakthrough, the United Autoworkers union agreed to allow the company to hire new workers on less generous terms than existing members, and Ford has once again stepped up the pace of redundancies.

With the short-term challenges piling up, Mr Mulally could be forgiven for overlooking the longer-term worry: the emerging market manufacturers such as Tata becoming significant competitors on the world stage.