August 22, 2007 at 1:00 am

Brazil is road map for U.S. rebound

SÃO BERNARDO DO CAMPO, Brazil -- If Ford Americas President Mark Fields seems overly confident when he talks about the company's turnaround plan, it's because he has already seen it work -- in Brazil.

The Way Forward plan Fields unveiled last year in Dearborn is an outgrowth of the restructuring plan Ford Motor Co. developed to save its Brazilian operations. Five years ago, Ford was on the brink of pulling out of South America's most important market. Instead, it closed factories, bought out workers, consolidated its dealer network and launched a stream of home-run products.

Today, Ford has doubled its market share and become one of the most profitable automakers in Brazil. Its products are lauded by the local auto press and loved by consumers. Its biggest problem now is that its factories cannot keep up with the surging demand for its cars and trucks.

There are important differences between North America and South America, but Ford is confident the strategy it developed to save its business here can help save its business in the United States.

"It is essentially the same plan that Mark and the team have laid out for North America," CEO Alan Mulally told The Detroit News.

Said Fields: "It shows it can work."

Brazil's way forward

For much of the last century, Ford was a market leader in Brazil. But the 1980s brought a surprise invasion by overseas competitors -- in this case from Europe. The effect was the same as when Japanese automakers arrived in the United States. Unprepared and reliant on aging factories, Ford was pummeled by the newcomers.

As it lost market share, Ford sought help from another longtime South American manufacturer -- Germany's Volkswagen AG. In 1986, the two companies combined their South American operations to form Autolatina, but the alliance fell apart in 1994, the victim of clashing cultures.

Ford emerged from the Autolatina debacle hemorrhaging cash. Its share of the key Brazilian market was down to just 6 percent. A few years later, financial crises in Russia and Asia triggered a collapse of the entire Brazilian auto industry.

"By 2002, we had around 42 or 43 percent idle capacity in Brazil," recalled Rogelio Golfarb, director of government affairs and public relations for Ford do Brasil. "We were losing money. The brand was weak. The dealer network was suffering from lack of profitability. And our products did not appeal to the customers. We were in a very difficult situation."

Brazilian business journalists were already writing Ford's obituary, and most expected the automaker to pull out of the country within a year.

"We knew we needed to change our business model," said Dom DiMarco, head of Ford's South American division.

Ford closed its posh corporate offices in downtown São Paulo and moved into converted factory space at its main manufacturing facility here in an industrial suburb. The automaker also closed its main truck plant and consolidated those operations here, too.

Ford cut a quarter of its salaried work force. It eliminated or reassigned 3,600 factory workers, about half its hourly work force in the country. Those who lost their jobs were given buyouts. The automaker also consolidated its Brazilian dealership network and worked with franchise owners to remodel their stores.

If all this sounds familiar, it is.

In the United States, Ford has already idled four assembly plants and plans to close 16 factories by 2012. It has eliminated more than 10,000 salaried positions and cut more than 20,000 hourly jobs since the end of 2005. And it's consolidating its U.S. dealer network.

Project Amazon

When Ford launched its Brazil turnaround, most of the cars and trucks it sold were older models that had not kept pace with Brazilian consumers' increasingly sophisticated tastes. The company knew it needed better products to drive its recovery. So, even as Ford moved to close older factories, it invested millions in a new plant and new products as part of its top secret "Project Amazon."

The plant, completed in October 2001, was built in Camaçari, in the rural northeastern state of Bahia, where labor was cheap and government incentives rich. It is one of the most advanced auto factories in the world, leaner and more flexible than any other Ford plant.

"It's very critical in terms of delivering what we needed to deliver in terms of products, quality and costs," said Marcos Oliveira, president of Ford do Brasil. "It brought our manufacturing in Brazil to a different level."

Its first product was a new version of the European Ford Fiesta, modified to better match local tastes. It was an early example of the global product development strategy that Mulally is trying to extend throughout the company.

The first one rolled off the new assembly line in April 2002, and was an instant hit. Ford followed it up with a sedan version that became the segment leader in Brazil the first month it went on sale.

But the best was yet to come

Before the new factory even opened, work already had begun on a new model that would be designed and built in Brazil. It was the EcoSport, a subcompact sport utility vehicle that would offer true off-road capability in the sort of economical package the Brazilian market demanded.

"In Brazil, there is no room for Navigators," Golfarb said. "And there is no money for them either. It had to do something with the Ford DNA. It had to be affordable. We had the Explorer, too, but it wasn't affordable."

Golfarb was on hand when the design team presented the first drawings. It looked like a pint-sized version of the Explorer -- smaller than the Ford Escape, but still looking like it was ready for anything. It was essentially approved on the spot.

The EcoSport not only created a new segment in South America, it dominated it. It became the icon of a resurgent Ford and sent competitors scrambling to catch up.

Elaine Brezolin, a 50-year-old lawyer and accountant from São Paulo, is a typical EcoSport owner. She likes the car for the same reasons that make compact SUVs popular in the United States: the commanding seating position, the car-like ride and the knowledge that she can take it off-road if she has to. "The EcoSport is the car every woman wants to have," Brezolin said. "All of my friends say, 'I want an EcoSport.' My cousin offered to trade me her Corolla for my EcoSport. I said, 'No! No! No!' "

Ernesto Geraldi said he hears comments like that all the time at his Ford dealership in São Paulo -- and not just about the EcoSport, but all of Ford's products. He even has a 30-day waiting list for the entry-level Ka, a car Ford has been producing in Brazil without a major redesign for 10 years.

"The demand is more than production" -- particularly for the Fiesta and EcoSport, Geraldi said. "Our margins are increasing. Our products are desirable, and our market share is increasing."

This from a dealer who was seriously thinking about getting rid of his Ford franchises just a few years ago.

"In every segment, we have a desirable product," Ford's Oliviera said. "Once you understand the market requirements and the demand, you tailor your solutions to the particular needs of the market. I think Ford is starting to do that in the States with the Fusion and Edge."

Taking it to the street

Even with hot products, it took a massive marketing effort to convince Brazilian consumers to give the Blue Oval a second chance.

Jorge Chear Neto took a job as a marketing executive at Ford in 2000 because he relished a challenge. "It was one of the weakest brands I ever saw in my life," he recalled.

A year later, the company launched a new advertising effort to coincide with the rollout of its new Project Amazon vehicles. The message was simple: "Let a Ford surprise you."

Ford did not stop there. It offered to pay prospective buyers 100 reais -- about $50 -- to test drive a Ford product. If they bought a Ford, that money went toward the purchase price. If they bought a competitor's product, they got the cash. "We really challenged customers to come to the dealers," Neto said, noting the campaign was a huge success.

Marketing is one area where Ford's North American turnaround effort has so far fallen short. Its "Bold Moves" campaign fizzled when the automaker failed to match those words with any concrete actions.

But here, too, executives in Brazil say there is reason for optimism. That is because Barry Ingle, the man responsible for the test drive promotion and other marketing successes in Brazil, recently headed north to lead Ford brand marketing in the United States.

Ford's biggest problem today is that it does not have enough capacity in South America, let alone Brazil, to keep up with demand. In fact, Ford lost a point of market share last year simply because it could not make enough vehicles fast enough.

Still, its share of the Brazilian market has soared from just 6.6 percent in 2001 to nearly 12 percent today. The automaker peaked at 12.4 percent in 2005 and hopes to regain that by the end of this year.

Ford now is the fourth largest automaker in Brazil, and one of the most profitable. As of last month, Ford had posted 14 consecutive quarters of profit in the country. All of its plants are running at or above 100 percent manned capacity, and Ford plans to invest nearly $1 billion in Brazil over the next four years to make sure they can keep up.

Will it play in Detroit?

Ford's North American turnaround has produced much more modest results. The company did swing back to a profit in the second quarter this year, but Mulally and other executives have been quick to warn that the rest of 2007 promises more red ink.

DiMarco says it took more than a year to see results in Brazil, too. "When we first started coming out of this, we still weren't profitable. But people were starting to notice our products and say, 'hey, that's a Ford.' It started to build on that. I see that in the U.S. as well. I see that fly wheel starting to turn."

Some analysts, among them George Peterson, president of AutoPacific Inc. in Tustin, Calif., say it makes sense for Ford to import its Brazilian strategy to the United States.

"It's a good starting point," he said.

But there are important differences between the situations Ford faces in the two countries.

Its turnaround in South America coincided with a regional economic boom and resurgence of the entire Brazilian auto industry. In the United States, Ford is struggling to turn around its business against the backdrop of an uncertain economy and sagging auto sales that hurting even the strongest brands.

"Fortune was with Ford in Brazil," said Bradley Rubin, an analyst with BNP Paribas.

More importantly, he said, Ford has little liability for pensions and health care in Brazil. Rubin said those costs are crippling the company in the United States, making the restructuring actions outlined in Field's Way Forward plan of secondary importance to the labor talks now going on between Ford and the United Auto Workers.

"It's all about the contract now," he said. "You've got to get those legacy costs off the books."

You can reach Bryce Hoffman at (313) 222-2443 or bhoffman@detnews.com">bhoffman@detnews.com.

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