Ford Confirms End of Mercury Brand in Q4

Ford has confirmed reports from earlier in the week that it will indeed be closing down the Mercury brand this year, with the final Mercury models to roll off the assembly line in the fourth quarter of the year. Suffering from continually dwindling market share volume (Mercury brand held just 0.8% of the U.S. market through the first five months of the year, according to Ford), the decision reportedly came out of a recent meeting to review the company's product plans, according to Mark Fields, Ford President of the Americas. "This decision was really an outcome of an extensive product plan study that we do each spring," said Fields. "We don't take this decision lightly. As we look at the Mercury brand, it has really served us well in the past, but now we are looking forward." A major factor in the decision was reportedly the fact that the brand that most Mercury customers cross-shop the most is Ford brand, meaning that Mercury customers are probably likely to buy a Ford vehicle with Mercury gone. The brand has seen models disappear with no replacements slated, such as the Mountaineer sport utility vehicle (SUV), a version of the Explorer that was not set to be replaced when the new Explorer is unveiled later this year. The Grand Marquis is being eliminated as the St Thomas, Ontario, plant that builds Ford's ancient body-on-frame rear-drive Panther platform cars is set to be shuttered next year. Ford says that the elimination of the Mercury brand will allow it to focus its resources 100% on its two remaining brands globally: Ford and Lincoln. The Ford brand has seen its market share in the United States grow 2% since the beginning of the year, while Lincoln has started to see some decent gains thanks to a new line-up.

The decision has left many dealers wondering how the process is going to work. There are 1,712 Mercury dealers in the United States, but none of them is a stand-alone Mercury dealer. According to Ford, 925 are Ford-Lincoln-Mercury dealers, 511 are Ford-Mercury, and 276 are Lincoln-Mercury. Dealers that are Lincoln-Mercury will be the most at risk, according to Ford, and will undergo an examination of their options. In the cases where it makes sense to do so, the dealer will replace Mercury with the Ford brand, but it may be that some dealers will not be able to do so due to market restrictions, in which case they may be offered a "consolidation" with an existing Ford franchise somewhere nearby. This is likely to cost Ford some money, as closing brands outside bankruptcy always does, but Fields insists that the sum (while undisclosed) is not going to affect the company's guidance for the financial outlook presented at the end of the first quarter.

The biggest impact of Mercury's closure will be on Lincoln. According to Derrick Kuzak, Ford's global product development czar, Lincoln will receive seven new or significantly refreshed models in the next four years, including the revised 2011 MKX that was shown at the 2010 North American International Auto Show (NAIAS) in January. He also confirmed that Lincoln will receive a C-platform vehicle as well, the first-ever Lincoln compact car. Such a vehicle was previewed in concept form at the 2009 NAIAS as the Lincoln concept-C, but Kuzak would not comment on whether the production version would resemble that concept. Mercury was slated to receive a C-platform vehicle based on the Ford Focus called Tracer, and dealers were even informed that a version was under development earlier this year. In addition to the C-segment Lincoln, possibly to be called MKC, the company plans to work to differentiate Lincoln from Ford brand through styling, materials, and exclusive content. Lincolns will get a new V6 engine, according to Kuzak, and will have exclusive powertrain options. The Navigator SUV will receive an EcoBoost engine as well, with that turbocharging technology set to proliferate across the Lincoln line-up.

Outlook and Implications

Mercury for a long time served a very useful purpose at Ford: for a minimal investment, Ford was able to modify standard Ford models with some new trim, different colours, and marginally nicer interior materials, and sell nearly 25% more of those vehicles through Lincoln dealers. Adding 25% to the production tallies for Ford vehicles helps economies of scale, plant utilisation, and distribution costs for Lincoln vehicles as well. Mercury also gave Lincoln dealers something to sell during the fuel price crisis of 2007 and 2008, by providing smaller, more fuel-efficient cars than the Lincoln brand was purveying. Thus, the case to keep Mercury was always strong enough that spending the kind of money needed to either make it a full brand in and of itself or kill it and invest in other brands was simply unwise. Today however, it is a very different game that Ford is playing. The Ford brand itself is on a roll, and the company's product strategy calls for Fords themselves to get more expensive. The upcoming Ford Focus is likely to see mid- to high-US$20,000 sticker prices, meaning that the Mercury Tracer that was supposed to arrive at Mercury dealers would have had to be even more expensive, likely close to US$30,000, for a compact Mercury. From a sales standpoint, that is a highly unlikely proposition. And so it seems that the strategy discussed back in 2008 for Mercury, in which Mercury and Lincoln would have a symbiotic relationship that would see Mercury handling lower-D segment vehicles and smaller while Lincoln handled upper-D segment and larger, is dead. But if Mercury goes, what will become of Lincoln?

With this move, the company has eliminated all of its premium brands, save Lincoln. Aston Martin, Jaguar, Land Rover, and Volvo are gone. This is freeing up resources and cash at Ford such that the company can finally spend the kind of money and make the kinds of decisions it needs to make with regards to Lincoln that are required for it to become a truly competitive luxury player once more. With the divestment of Volvo to Chinese automaker Geely, Ford finds itself without a global luxury brand. And while it is fine to try and concentrate on the Ford brand first and foremost, seeing as how that is the name on the side of the building so to speak, the margins on luxury vehicles globally are too great to ignore. For Ford to be a major international player, a luxury brand is simply necessary.

Enter the Toyota model. CEO Alan Mulally is known to be a big admirer of how Toyota operates in terms of production and strategy, and now Ford is about to look even more like Toyota than it has in the past. Globally making vehicles on common platforms that are largely similar between markets. Communising marketing messages and content across continents in order to maintain that continuity of message. And now, comprising one main global brand and one luxury brand that uses platforms that also underpin its more pedestrian offerings. Similar strategies have been successfully implemented at Volkswagen (VW) as well, with the bones of the Audi-brand vehicles all sharing foundations with vehicles bearing VW, Skoda, and SEAT badges as well. But Ford has its work cut out for it in what it needs to do in order to make Lincoln a truly competitive global luxury brand again. Right now, it has some very good offerings, but it is not yet on the level of a globally appealing luxury brand. It is still very North America-centric in terms of its products and offerings, and while this works domestically, it is not a long-term strategy that will win buyers in Europe or Asia (as GM has discovered with Cadillac). Ford has to develop a strategy to differentiate Lincoln from Ford in ways that cause consumers to appraise a common-platform vehicle side-by-side, and not recognise that they share the same structure. The company has done a very decent job of this with the Ford Flex and Lincoln MKT big CUVs, less so with the Ford Fusion and Lincoln MKZ mid-size sedans. But beyond just styling, content differentiation is also critical. EcoBoost engines need to proliferate across Ford's line-up in order for the company to meet more stringent corporate average fuel economy (CAFE) standards, but other technology that was exclusive to Lincoln is now showing up on Fords, such as the automatic parallel parking system and blind-spot detection warning system. A Ford Taurus SHO can be outfitted almost identically to a Lincoln MKS EcoBoost, and yet come in nearly US$10,000 less in sticker price. In order for Ford's new strategy to work, it will need to invest heavily in Lincoln and remake it into something special. It has the resources to do so now, with only Ford and Lincoln left to spend money on. There should be no excuse for anything other than world-class luxury products at Lincoln, going forward.