News

For just a flash, Derrick Kuzak is throwing daggers with his eyes. And this is totally out of character for Ford's group vice-president for global product development.

With a doctorate in electrical engineering and a background in systems integration in the aerospace industry, Kuzak comes across as a calm, organized, respectful and thoughtful automotive executive.

More than once, during dinner in a restaurant carved out of a cave about an hour's drive from Ford of Europe's Lommel Proving Grounds in Belgium, Kuzak apologizes for any difficulties we might have in hearing his deep but soft baritone. But his eyes communicate a fierceness that is impossible to miss.

Kuzak's message is worth hearing. It is all about the proof of Ford's long-awaited, and some would say stalled, turnaround. In the car business, proof of success is easy enough to see, though.

New models that come out of any makeover, if they are stylish, well-built, properly equipped with the latest technology and rewarding to drive, sell fast and at premium prices.

I got the sharp look from Kuzak for rather rudely suggesting that he and his Ford colleagues are burning up the company's cash reserves at a ferocious rate — on average more than $1-billion (U.S) a month. This gives them less than 24 months to reinvent not only the cars and trucks themselves, but the way they are developed and built and how the public perceives them. Any longer and Ford will be bled dry of all the money it raised by mortgaging all its assets in the world.

In June, Ford reported a second-quarter loss of $8.7- billion, its worst single quarter in history. That came after a loss of $2.7-billion for 2007 and a loss of $12.6-billion in 2006. And Ford expects to incinerate $16-billion in cash through 2009.

Even at this rate, Ford has the money to survive. At the end of June, at the time of its last quarterly filing, Ford had $26.6-billion in cash and $11.6-billion in credit, for a total of $38.2-billion in available cash. But the losses must eventually end, and the key to it all is a plan to make over its lineup with a slew of small and smallish vehicles in the next 2-1/2 years.

It is when I point to the financial issues that I get the look. And then it's gone even as I suggest that he's not happy with my skepticism.

"We all understand what you are saying, the seriousness of it," he says.

"But we believe we're doing the right things to turn this around."

The first, and perhaps most important, thing is the new 2009 Ford Fiesta subcompact, what is known as a "B-car" in the auto industry. It is going on sale in Europe right now and will come to Canada and the United States early in 2010 as a 2011 model.

In Europe, the Fiesta starts at about €11,000 ($16,600 Canadian) for a three-door hatchback. Kuzak and his Ford colleagues expect four-door sedan and five-door hatchback versions to sell in volume numbers for between €14,000 to €16,000.

That's a reasonably competitive price, though a stripped version of the rival Opel Corsa sells for around €8,000 in Germany.

Remember, though, that one euro is worth about $1.52 Canadian dollars. So here is the rub: In Canada and the United States, Ford must sell four- and five-door cars for $15,000-$16,000 at most (the three-door hatch is not planned for Canada and the United States).

That price is dictated by the marketplace. That is, the Fiesta must compete against comparably priced models such as the Honda Fit, Toyota Yaris, Nissan Versa, Chevrolet Aveo, Kia Rio and Hyundai Accents of the world.

Ford certainly is facing a steep challenge. Can it sell a car with a price tag in dollars that is nearly identical to the euro price of the European Fiesta?

Ford officials say it's possible, arguing that the Fiesta is the most stylish, most technologically advanced, best-driving small car in its segment. Ford will get whatever premium pricing is possible in the small car business around the world. That, in a nutshell, is why the company is planning to make substantial profits on small cars wherever they are marketed, including in North America.

Now if Ford does manage to earn money on small cars, it will be for the first time in recent memory. Kuzak, though, is convinced that his company's product plans are going to work.

In fact, Ford has said it will bring in a slew of new small-car models from Europe, and those plans suggest that Ford could soon be making nearly one million cars annually in North America that are Focus-size or smaller.

That's right, a new Focus is also coming in 2010 as a 2011 model.

The Ford executives here presenting their story — which include Kuzak; Merin Burela, the Ford executive directly in charge of developing and delivering all new B-cars models; and Martin Smith, Ford of Europe design boss — all insist Ford will succeed.

Winning over small car buyers in North America will take a Herculean effort. In Canada and the United States, the bulk of Ford's business for the last two decades has been geared to selling F-150 pickups, Explorer SUVs and Lincoln Navigator luxury SUVs.

Some suggest it is wishful thinking to believe that fuel economy-conscious customers will be instantly won over when they visit Ford showrooms — even if they are stuffed to the rafters with sexy new cars and crossovers that are economic to run and thrilling to own and drive.

When I suggest this to Kuzak, he listens politely. When I point out that Moody's Investors Service, the bond-rating company, isn't so sure about Ford's plans either, he acknowledges the point, even as he disagrees with it.

Moody's has expressed skepticism about the Detroit Three's ability to boost car sales quickly after relying on trucks for so long. "The most difficult challenge facing GM and the other domestic producers will be accelerating the introduction of fuel-efficient vehicles, and convincing consumers that these vehicles offer as good a value proposition as Asian products," wrote Bruce Clark, senior vice-president of Moody's.

Kuzak concedes that it will not be easy to get buyers to choose Fiestas and Focuses over well-established models from Toyota, Honda and others. But it will happen.

It will happen because Ford has painfully come to the conclusion that "good isn't good enough," he says at this dinner on the night before a two-day dive deep into the future of Ford's new products — with emphasis on the Fiesta — and how they are being developed and manufactured. "We realize we have to surprise people with Ford designs."

And delight them, which is not something Ford has done with small cars in Canada and the United States for longer than anyone at Ford cares to admit. Meanwhile, the money clock is ticking as Ford's share of North American vehicle sales continues to skid.

In the late 1990s, Ford owned 25 per cent of the North American market and there was serious talk about Ford surpassing General Motors in market share. No one says anything of the sort now that Ford's combined share in Canada and the U.S. is hovering at about 15 per cent and sliding.

The fact is, Ford's U.S. sales are falling far faster than the market itself. For the first seven months of 2008, Ford's sales are down 14 per cent in the United States and 6.1 per cent in Canada. Ford is now the No. 4 auto maker in Canada behind GM, Chrysler and Toyota.

Kuzak, however, argues strenuously that there is a sea change afoot in the North American marketplace, that buyers in unprecedented numbers are making the permanent move to smaller vehicles. Because Ford began earnestly to conjure up the new Fiesta and the upcoming Focus and other small vehicles three years ago, the auto maker is in the perfect position to reap the benefits of a radical shift in the global marketplace.

Ford executives say U.S. customers in particular are moving rapidly to more fuel-efficient cars, and away from SUVs and trucks, and that in time the U.S. marketplace will look much more like Canada's, where compact and subcompact cars command more than 40 per cent of all new car sales.

Kuzak says the dramatic shift in sales shocked him when gas prices zoomed past $3.50 (U.S.) a gallon in the spring. Gas prices may have fallen back from their high of $4.25 a gallon, but the damage has been done. Buyers will not revert to buying big gas hogs again. They will more and more embrace fuel efficiency, but they will not tolerate dull little econo-boxes.

It's not entirely fair to call the current Focus a dull econo-box, but it is not exactly the most exciting small car offered today, either.

Still, Ford officials have said they could sell 300,000 Focus models in the United States if only they had capacity to build them. (The Focus is the ninth-best selling car in Canada, with sales up 6.1 per cent on the year.) Unfortunately for Ford, slightly more than 150,000 Focuses were sold in the first eight months (Canada and U.S. combined), indicating that total output of the Focus — Ford's only small-car offering in Canada and the U.S. — will be limited to about 240,000 this year.

Small-car capacity won't be a problem much longer at Ford, although the news here is not good for Canada. The company is creating the capacity to build small cars by transforming a pickup truck plant in Mexico.

It will make the European-designed Fiesta small car there for North America. Ford has also said it will add diesel engine production and a transmission joint venture in Mexico.

All this represents a $3-billion investment, none of which is coming to Canada. Neither will any of the approximately 4,500 direct jobs coming out of the deal. Together with indirect employment at suppliers, Ford's moves affect 30,000 jobs in Mexico.

Kuzak says Ford president and CEO Alan Mullaly has made it clear many times that the company's global assets will be wisely spent in places where they will get the best return. The idea is to accelerate the shift to more fuel-efficient small cars and powertrain technologies that people really want and value, he says.

As the dinner ends, Kuzak again comes back to the astonishing momentum he is seeing in small-car sales. They are outpacing overall industry growth worldwide, he notes. Globally, small-car sales have grown from 23 million in 2002 to an estimated 38 million.

"We are ready for that shift in the marketplace," he says.

And with that I get a different, confident look.