Ford Uses Rental Market to Spark Interest in Taurus

Ford Motor Co.’s new ’08 Taurus, a replacement for the disappointing Five Hundred sedan, has been on the market since June, but it’s still too early to determine whether the vehicle is a success, the auto maker’s top sales analyst says.

While June sales were a respectable 5,836 units, July saw a decline to 3,907 deliveries, Ward’s data shows.

But the drop in sales can be explained, says George Pipas, noting it results in part from a Ford marketing strategy.

“To get our products in front of likely buyers, we decided in year one (of the cycle) that 15%-20% of total volume is going to be distributed to daily rental companies,” Pipas says in explaining the higher June volume.

“Market research with customers before and after a rental experience of a good product shows consideration is higher after rental than before.”

John Blair, CEO of “Automotive Lease Guide,” agrees with the basic premise of placing newly launched vehicles in rental fleets to create awareness. However, he says 15%-20% of initial volume is too high.

“Fifteen percent is a pretty large number to sell to fleets for exposure purposes. Typically, it’s a smaller (percentage),” says Blair, noting such a large influx reduces residual values, the very thing Ford has been trying to avoid.

“If your percentage of sales exceeds single digits, anything north of 10% has a negative effect on residual values,” he adds. “Those cars come back in big numbers and get in auctions early in their lifecycle, and it drags down resale value.”

Too early to measure ’08 Taurus success.

To date, Ford has reduced its daily rental fleet sales 32%, Pipas says, noting such sales now account for only 14.5% of total volume.

If Ford were to abandon the practice of placing new models early in the production run into rental fleets, it would be left solely to its dealer body to familiarize potential customers with the vehicle, which is not always possible, Pipas maintains.

“If you run a new car out through the dealers in the first few months, they may have only a couple (units), and they are going to hold out for higher grosses. So some (cars) get sold and some sit,” he says.

“Sitting in a parking lot doesn’t do anybody any good. It’s better to run a predetermined percentage through daily rental business and get the car out on the road and people behind the wheel.”

In the past, Ford relied too heavily on rental fleet sales, Pipas says. With the previous-generation Taurus, this practice not only degraded residual values but also tarnished the car’s image. So much so, that toward the end of its lifecycle, the Taurus was viewed largely as a rental car.

In hindsight, Ford realized it was a mistake to keep pumping out cars for rental sales. But it was a choice of continuing the practice or shuttering factories. Ford made the choice to keep its plants running, which it later would regret.

“The lesson learned was to align capacity with demand,” Pipas admits.

Eventually, Ford was forced to close factories as part of its wide ranging Way Forward North American restructuring plan, which also cost thousands of jobs and resulted in a profound reduction in capacity.

The auto maker says it has learned from its mistakes.

“We’ve aggressively restructured our business for profitability at lower demand and a changed product mix,” Pipas explains. “As long as we execute that and accelerate development of products people want to buy, then we’re not likely to get back into that mode. Balance is a very important word.”

Meanwhile, Pipas says early indications are the Taurus is performing well in the all-important retail market, where greater profits can be had.

“Retail is growing, but not dramatically,” he says. “But it’s climbing. And there’s some nice stories emerging about (previous) Taurus owners coming back into the market.”

Cisco Codina, group vice president-North America marketing, sales and service, says dealers are pleased with the new Taurus.

“Reaction has been overwhelming,” he says. “The first time we went out to wholesale the product, we got extra orders and not by a few, but by a lot. (Dealers) are pumped about the Taurus name and think it was a mistake getting rid of it.”

Advertising for the Taurus, which to this point has been minimal, will pick up later this year and into first-quarter 2008, Pipas says.

Heavy advertising now, he notes, would get lost in the shuffle of the end-of-year marketing blitz currently under way, as auto makers seek to clear out ’07 models to prepare for the ’08 arrivals.

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