Special dealerships are part of Ford's luxury strategy

They aren’t saying so directly, but Ford Motor Co. evidently has its eye on becoming the leader in the luxury car segment.

The leadership is in place, the brands have been acquired and the strategy is taking shape. That includes building dealerships selling all five makes in the Premier Auto Group.

It's enough to make other players in the luxury segment sit up and take notice.

The first step in Ford’s strategy was the development of its luxury division in 1999 -- the Premier Auto Group. All of Ford’s luxury brands at the time –- Lincoln, Volvo, Jaguar and Aston Martin -- were placed in the Premier division.

The next step taken by CEO Jac Nasser might prove to be the most important. When product guru Wolfgang Reitzle resigned from BMW in February of 1999, Mr. Nasser moved quickly to snag him and give him control of the Premier Auto Group.

Mr. Reitzle is considered by many in the auto industry as a top "car" guy who demands perfection. He has a reputation from his days at BMW where he became known for his technological expertise and ability to think big.

In an interview with Ward’s Dealer Business, Mr. Reitzle describes his management style as flexible, open and straightforward. "In this business we have to be able to change, to be open to new ideas and also be able to adapt quickly," he says.

Victor Doolan followed Mr. Reitzle from BMW to Ford, and is now Premier Auto Group’s North American executive director for marketing and distribution strategy.

Mr. Doolan says, "I told Wolfgang recently that if we could transfer his energy to California we would no longer have a power problem."

Mr. Reitzle can also be unpredictable. A Premier executive says, "Nothing Wolfgang does would surprise me."

Mr. Reitzle envisions the Premier Auto Group as being highly competitive in the luxury market. One gets the sense, though, that his definition of competitive might be dominance.

Can he make Ford the dominant player in the luxury market?

Mr. Nasser says that three years ago Ford sold only 200,000 vehicles in the luxury segment. In 2000, Ford, armed with new acquisitions, sold over 800,000. He predicts in two to three years, Ford’s total luxury car sales will hit 1.3 million.

Mr. Reitzle is confident those numbers are attainable. He has a clear understanding of where to take the Premier Auto Group and how to get there.

The ambitious executive has put together a calculated and carefully planned strategy for the Premier Auto Group.

Believing that stretching the Jaguar, Aston Martin and Lincoln brands would not be cost effective and would ultimately destroy the brands’ images, Ford began assembling a powerful portfolio of premium brands that already had a image.

In March of 1999, Ford purchased Volvo and added it to the Premier division. Land Rover was next, purchased by the number two automaker from BMW in June of 2000.

Mr. Reitzle says, "We have acquired some very strong brands that complement each other. We can maintain the unique image of each brand. By not overlapping the brands and having vehicles that are complementary and sharing technology, that is how we will be competitive."

That's a sound strategy, says auto analyst Lincoln Merrihew, vice president of corporate planning for the Automotive Information Center.

"They’ve been able to acquire brands with a clear image. Instead of trying to fill out each brand -– like adding an SUV or truck to the Jaguar brand, something Porsche is considering –- Ford can continue to maintain the exclusive image each brand has."

David Andrea, chief economist for CSM Worldwide, likes the idea of gaining market share with a large group composed of smaller niche vehicles.

"The advantages are there," Mr. Andrea argues. "By integrating these smaller groups into one larger group, a company is able to take advantage of the synergies –- sharing technology, using a common supplier base –- and, therefore, reduce costs and improve margins. Also, the coordination of worldwide product planning becomes easier with complete ownership."

Synergy is a popular buzz word in the industry. It's easy to talk about, hard to do it. The Daimler-Chrysler merger is an example of that.

The Premier Group will have to identify in each vehicle the components and technologies that can be used in each of the product lines. All the while maintaining that brand exclusivity.

Mr. Reitzle is taking some big steps to create further synergy among Premier’s brands. Come September of this year, the North American headquarters for all five brands will be housed in one complex in Irvine, CA. Having everyone in the same location will make it easier to share technology and design ideas.

Premier Dealerships

The approach of consolidation also is being implemented in the dealerships.

Mr. Reitzle says, "We want to go for so-called common ownership PAG dealers. What that means is that one dealer has five showrooms for our five brands all-exclusive, with exclusive sales people."

Although the plan is to house the brands under one roof, each brand will maintain exclusive customer touch points. For instance, each brand will have separate entrances, separate showrooms and separate service write-up areas.

The true advantage is found in the back-end operations. All the common processes like communications, purchasing and the service bay areas will be shared by each brand.

Mr. Reitzle estimates that such a dealership can save 2% on its costs. "And when the average dealership makes about 2% profit -– well, consolidation could very well double the margins," he says.

Mr. Andrea says, "It is a good concept for dealers. It provides an opportunity for the dealer to minimize his assets while maximizing the return on the assets kept."

Mr. Doolan says, "We try to refrain from using the term 'Premier dealership.'" Internally, we use the term ‘Premier Customer Experience’ because that’s what we want to provide."

One of the more highly touted features is the integrated off-road and on-road quarter-mile test track. As Mr. Doolan envisions it, a customer could drop off his Navigator for service and then jump into an Aston-Martin and tool around the track.

Mr. Doolan says three Premier dealerships -- or 'experiences' -- are in existence already. They're in Denver, Oklahoma City and Manhattan. The dealerships were all built before the Land Rover deal was consummated so they only have three or four of the Premier brands.

Roger Penske’s United Auto Group is building the first five-brand Premier dealership in the country. They purchased 41 acres in Phoenix and have designated 15 of those acres for the Premier site.

A groundbreaking is slated for this summer, and the Premier site will be ready by spring of 2001, according to Steve Knappenberger, western division president for United Auto Group.

The dealership will follow Premier’s design guidelines. It will be a crescent-shaped building with exclusive entrances for all of the brands. Mercury also will have its own showroom.

One general manager will oversee the whole dealership operation, but all of the sales staff will be exclusive to their brands.

Mr. Merrihew advises Premier to carefully limit competition between the sales people. "Having one general manager overseeing the entire operation is a good idea," he says.

The five-brand dealership is really a novelty, though. With the low sales volume of Aston-Martin, it is not feasible to have an Aston-Martin showroom at every Premier location.

Howard Mosher North American president for Land Rover, thinks there will only be five or six dealerships with all of the brands over the next few years.

Dr. Reitzle estimates that within five years, Premier will have anywhere from 50 to 75 dealerships with at least three of the brands.

Premier executives are stress that they are not forcing any dealers to sell out so the dealership concept can move forward.

"We have no timetable and no idea of how many Premier dealerships we want to create," says Mr. Reitzle.

Adds Mr. Doolan, "The concept will progress naturally. We’ll only consolidate in areas that make sense and as dealerships become available."

Mark LaNeve, the president and CEO of Volvo North America, says, "We don’t want to go about it in a way that will hurt our existing dealer body."

Mr. Doolan says he hasn’t heard any concerns from dealers about the concept. In fact, many dealers are expressing intense interest in the concept.

Dealers in Detroit have tried to bring in a Premier site, but the timing wasn’t right, according to Steve Conyers of Riverside Ford. Instead, Mr. Conyers "settled" for a single-point Jaguar location in Novi, MI.

Mr. Penske, who is putting in the Premier dealership in Phoenix, says his United Auto Group tried to establish another Premier location in Irvine, CA but circumstances prevented that.

Rick Kline, a Volvo dealer in Maplewood, MN is sold on the Premier concept.

"A soon as I heard about it, I purchased five acres of land to build on," he says. "We are involved in negotiations with Jaguar to possibly obtain one of their franchises."

The process of obtaining a Premier location starts with the manufacturer, according to Mr. Kline. The factory determines who their best Premier candidates are within a certain metro area. Then the Premier folks step in and make a determination from all the brands who is the best candidate.

Meanwhile, Mr. Reitzle is moving aggressively in bringing new product to the market – products that he says will be "icons." Here's a rundown:

Jaguar

Already, the British luxury car maker is seeing results. The X-Type, an all-wheel-drive sports sedan will be Jaguar’s fourth model line. When it hits the market next summer, Jaguar expects its days of being a niche competitor will be over.

With 2000 sales being over 90,000, Jaguar executives say the X-Type will double sales within the next couple of years.

Mr. Reitzle says the popular Jaguar F-Type concept two-seater would go on sale in 2004. The F-Type will be the basis for future Jaguar designs, he says. "This car will be an icon."

Land Rover

The brand with the reputation for "rugged luxury" is getting in position to make some noise.

One of the first tasks for Mr. Reitzle upon acquiring Land Rover, was to get its unbelievably inefficient plant at Solihull, England in order. That means cutting down on waste, reducing costs and imparting a sense of quality to the work force.

Ford is predicting that U.S. sales of Land Rover will double next year to 60,000 with the help of the Freelander. It arrives at showrooms this fall.

Volvo

Volvo will launch in 2003 a sport utility vehicle that's billed as remaining true to Volvo’s legacy of safety and quality.

Lincoln

Mark Hutchins, president of Lincoln-Mercury, says the process of making Lincoln a separate brand from Ford is progressing.

Also, the strategy of separating the Lincoln and Mercury brands is evolving. It began in dealerships nationally -– from advertising to the showroom floors. It will take a while before there will be a clear distinction, says Mr. Hutchins.

Mr. Reitzle says he'd like to see Lincoln dealers more profitable.

"Lincoln, with 1,000 dealerships, sells as many vehicles as Lexus does with 250 dealerships. We do need to fix that," he explains.

The question everyone is asking is: "What about Mercury?"

Mr. Nasser insists Mercury is here to stay. He acknowledges the brand isn’t a sales juggernaut, but "it is profitable for us."

Mercury’s strategy is taking shape. Ben Gilbert is the new vehicle/brand director. The Mercury Marauder –- dubbed a "bad boy sedan" -- debuted at the Chicago Auto Show.

Mr. Merrihew does not think Mercury is on the short-term chopping block.

The challenge is in how to define the brand. He says Mercury will survive if a successful brand image is created for it.

Mr. Andrea is slightly more skeptical about Mercury's potential survival, but agrees that the key is a clearer brand image.

The Marauder is one of the first steps in defining the Mercury image. It's an image that Mr. Doolan envisions as "individualistic, expressive and American."

He says, "Mercury will never be a true Premier brand, but it is an integral member of the Premier operating system. It provides an excellent entry into the Premier brands."

In Position

Ford Motor Company is confident they have the right pieces in place to become a major force in the luxury market.

Mr. Nasser boasts, "We’ve got the right brands. The margins are going to be improving as we go forward. And the synergies are wonderful."

Mr. Andrea thinks that the culture and environment of Premier -- one that thrives on quality -– needs to be spread throughout the entire Ford organization. "They also need make sure those brands stay exclusive."

Mr. Nasser sounds a near-battle cry, saying, "I believe we are in the strongest competitive position in the automotive world. And I wouldn’t trade places with any of our competitors, bar none!"