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Look to Korea

How long can Ford survive such haemorrhaging?

23 November 2006

9:53 AM

23 November 2006

9:53 AM

Ford recently declared losses of £3 billion in three months and is to ‘restate’ its earnings since 2001. According to my (failed) eleven-plus maths, that’s around £30 million a day. How long can any company survive such haemorrhaging?

All right, it includes one-off job-shedding and writing-down asset costs, with provisions for restructuring and 30,000 redundancies. But, even allowing for that, it’s still losing around £6–£8 million a day, with no end in sight despite new CEO Alan Mulally’s prediction that North American operations will return to profit in 2009.

Conventional wisdom has it that Ford’s problems are structural and deep-rooted, worsened by US pension, medical and legal liabilities. But essentially its problem is that it can’t sell enough cars to support the superstructure that has grown on the back of previous market dominance. Other, younger manufacturers have muscled into Ford’s space, new cars are cheaper than ever and there is worldwide over-capacity. What can Ford do about it?

Well, it could sell up and invest the money for a better return than it’ll get from car-making. But car-makers can’t imagine doing anything else. So its current strategy is to employ fewer people to make fewer cars and sell them more profitably. Yet why not sell more cars?

My first car was a Ford, a 1955 sit-up-and-beg Popular bought 40 years ago for £40. A year later, doubtless encouraged by news of my move into the market, a Korean heavy-industry company called Hyundai set up a motor subsidiary. I kicked off with the Hyundai Cortina, its version of Ford’s world-conquering mid-range saloon. Now it has 21 overseas production, assembly and R&D facilities, including a regional HQ right under Ford’s nose in Detroit. Significantly, though, it’s no longer Ford that it targets: it competes with the best of the Japanese and by 2004 was close second to Toyota in the  J.D. Power reliability survey. Given that Hyundai is also the world’s largest builder of oil tankers and is heavily into electronics, its engineering confidence has deep roots. Hence the unique five-year unlimited mileage warranty on all its cars.

I recently had a Hyundai Sante Fe on test, the five- or seven-seat SUV with switchable 4WD. Ranging in current form from £20,995 to £26,040, it competes with the market-leading Freelander, though it’s larger and virtually all the toys and tricks (including sat-nav on two models) come as standard. From the front it slightly resembles a Lexus or Honda, from the side a Volvo XC90. The rear, though easily accessible and featuring a refreshingly practical boot handle, is more cluttered and fussy.

Inside, there’s an immediate sense of light and space, with good visibility despite substantial A pillars. The wide seats are as supportive and comfortable as any I’ve sat in, and you simply step in and out of the car with no need for pot-holing or mountaineering skills. The controls are sensibly placed and not too many, there’s good rear head-and-leg room and a proper spare wheel. The third row of seats in the seven-seater are easy to reach and fold away but adults wouldn’t want a long journey in them. As with some other cars developed in right-hand drive markets (except the UK), the indicator and light stalks are where they should and used to be — on the right, leaving your left hand free for gear-shifting. The interior door-handles feel disconcertingly light and fragile, but probably aren’t.

With ESP on, handling is surprisingly tight for a car of its size. You wait for the lurch that doesn’t come. The penalty — if it is one — is a firm ride, but I never mind that. The automatic gearbox (£1,000 extra) is probably solid and durable but there’s no differential lock. The 2.2 diesel is willing enough (148bhp, 247lb ft of torque, 0–60mph 11.6 seconds, top speed 111mph) and felt adequate, but no more. You’re aware that it’s having to work, going up and down through that box often enough to sound like a taxi at times, and heavy towing would probably test it. You’d want the 2.7 V6 for that, although the latest diesel models reaching these shores have been uprated to 155bhp and meet Euro 4 emissions standards. The combined fuel estimate is 34mpg, but real-life yields are more like 28-29mpg.

These are quibbles, however. Overall, it feels what it almost certainly is — a very comfortable, versatile, durable, well-put-together car. But the big selling point is that five-year unlimited warranty. The cheapest Hyundai is the £5,990 Amica GSI runabout. Its trade-in value after three years would be about 36 per cent of that, though with two years’ warranty to run you’d get more privately. Even if you gave it away after five years, you’d still suffer under £1,200 a year depreciation. For worry-free motoring, it doesn’t get better than that.

It soon might, though. Kia (Hyundai’s cousin, 70 per cent owned by Hyundai) is to offer seven-year warranties on some models, albeit with a mileage limit of about 100,000. Neither of these manufacturers is yet favoured by status-seekers but both are becoming ever more popular. Can other mass-market manufacturers, clinging to three-year warranties, afford not to follow?

Which brings us back to Ford. Instead of discounting with the rest of the herd, why not be bold and offer a six-year warranty? Modern Fords are well made, servicing and repairs are relatively cheap and the prospect of six years’ mechanical security could influence millions of buying decisions. But until it does, I’d look at Hyundai first.

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