Ford Announced it is Discontinuing the Mercury Brand in 2010

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Tag: Ford, Mercury, Cancelling, Axing, Discontinuing, Brand, Mercury, Oldsmobile, GM, 4th Quarter, Saturn, Pontiac, Bankruptcy

June 7, 2010

On May 28, Bloomberg News first reported that Ford executives were developing plans to discontinuing its 70 year old mid-line Mercury brand.   The article stated:

“The automaker’s top executives are preparing a proposal to kill Mercury to be presented to directors in July, said the people, who asked not to be indentified revealing internal discussions. Mercury, losing two of four models next year, will be starved of products and promotion, the people said.”

Ford officially annouced it will phase-out the Mercury brand last past Wednesday. Furthermore, instead of a long phase-out, Ford will cease production on all Mercury vehicles in the fourth quarter of this year and there will be no 2011 model year Mercury vehicles.

There have been rumors since the late 1990s that former Ford CEO Jacques Nasser had planed to axe the division.  Since that time, the brand has lost all unique products and ultimately became slightly upscale, badge engineered Fords positioned below the premium Lincoln brand.  In today’s hyper-competitive automotive climate, the mid-line Mercury brand no longer was relevant in the market and it did not make good economic sense for Ford to invest billions of dollars to carve out its own product niche and image.  The Mercury brand is creature of the parent company’s neglect and also a casualty of the middle brand squeeze. Over the past 30 years the market evolved, as once entry level brands (Ford, Chevrolet, Toyota, and Nissan) moved upscale on content and price at the same time luxury brands moved downscale (Mercedes Benz, BMW, Cadillac, Lexus).

GM was the first of the US automakers go through the expensive process of realigning its brand structure when it was announced that the company’s mid-luxury brand Oldsmobile would be discontinued earlier this past decade.  GM’s recent pit-stop in bankruptcy allowed it to quickly discontinue Pontiac, HUMMER and Saturn.

Discontinuing a brand is an expensive undertaking as it was estimated to have cost GM $1 billion to buy out Oldsmobile dealers and subsequent legal fights related to the closure.  In the case of Ford there are no longer any stand-alone Mercury dealers.  Ford has been in the process of consolidating their Lincoln-Mercury dealers with their Ford franchises.  Today, the company has less than 300 Lincoln-Mercury dealers who do not sell Ford brand vehicles.  The company is going to have to contend with bolstering these dealers with the Ford brand or potentially buy them out.  Ford does not have the luxury of the bankruptcy court to quickly unwind the brand as GM recently did. Furthermore the dealer consolidation added to buyer confusion as all three brands basically sold the same vehicles as is the case with the Ford Fusion, Mercury Milan and Lincoln Zephyr/MKZ.  All three are for the most part the same vehicle with different trim being sold on the same showroom floor.

Over the last few years Ford Motor Company has sold off all of their foreign luxury nameplates such as Land Rover, Jaguar, Aston Martin and is in the process of closing a deal to sell Volvo to focus on its core Ford division and turn around its North American operation.  As a result the company’s Ford brand has solid product on the market and in the pipeline but has struggled with its Mercury and Lincoln brands.

Twenty five years ago, Mercury sold just over 528,000 vehicles a year.  Ten years ago the brand sold 450,000 vehicles and just last year was under 100,000 (Figure 1).  Moreover, the sales data illustrates another problem at Ford and that is with its luxury Lincoln brand.

Figure 1: Lincoln and Mercury Sales (Click to enlarge)

With the announcement of the elimination of Mercury, development and marketing resources can be freed up and invested into Lincoln.  It is estimated that advertising budget in a good year was about $500 million at the Lincoln-Mercury division.  With a Ford-Lincoln brand structure, the company can continue pushing the Ford brand to cover a wider range of the market and allow Lincoln to expand its lineup.  Furthermore, unburdened from Mercury, the company can put serious thought and focus into what it wants its luxury Lincoln brand to be.  Lincoln is not a credible luxury player in the US.  Since Ford’s troubles began last decade, Lincoln became little more than what Mercury is, selling basically rebadged Ford cars, trucks and SUVs.  It is arguable that Lincoln is far more irrelevant in the market today than Cadillac was prior to its product driven renaissance in the early 2000s.

In a recent article in Automotive News, Ford’s President Mark Fields outlined the company’s strategy for Lincoln:

“Ford's Fields says future Lincolns will stand out with advanced technology such as active noise cancellation, unique powertrains, adaptive suspensions and glass retractable roofs that Ford products do not get. Ford will spread the EcoBoost engine, a turbocharged direct-inject engine, across the entire Lincoln lineup, including the Navigator SUV.

Ford plans on expanding the Lincoln lineup with seven all-new or "significantly refreshed" vehicles in the next four years. Those include a product on the same size platform as the Ford Focus compact car. That might mean a small crossover based on the European Kuga for Lincoln. Ford declined to specify the vehicle. Lincoln could also get a U.S. version of the Mondeo sedan currently sold overseas.”

Conclusion:

The elimination of Mercury is a sound business decision that was inevitable and only made more urgen by the current economic problems in the US auto sector.  The company has to free up as much cash as possible to continue to invest in the Ford brand and attempt to revive Lincoln.  Also without its foreign nameplates that once were part of its Premier Automotive Group sold off, Lincoln is the company’s only option to tap into that luxury/premium market segment.  The question then becomes, will Ford give Lincoln the resources and time to turn the brand around or will the once proud nameplate muddle along until it ultimately suffers the same fate as Mercury.

The brief sketch Mark Fields outlined for Lincoln is unimpressive on paper.   Where GM is developing a new premium rear drive architecture for a range of new compact and midsized Cadillac vehicles, Lincoln will continue to rely on corporate front wheel drive platforms.  Independent of that, Lincoln also needs to find its stylistic DNA which it has not successfully done to date with its newly released products.  The future success of a re-launched Lincoln is uncertain, however, with the phasing out of Mercury, Ford has taken the first step in attempting to restore the brand.

References:

Official Ford Announcement

Mercury may be on last legs, Detroit Free Press, May 28, 2010

Ford Said to Plan End of Neglected Mercury After Seven Decades, Bloomberg New, May 28, 2010

Ford's next challenge: Rev up Lincoln, Automotive News, June 7, 2010

Ford offers payouts to Mercury dealers based on percentage of business, Automotive News, June 3, 2010



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