With Mercury folding, dealers need an upscale brand with a strong image—beyond an airport car.
For 10 years Ronnie Lohr was a steady buyer of luxury cars. But when it came time to replace his Infiniti earlier this year the 66-year-old retired marketing executive drove off in a Ford Taurus instead.
For Ford Motor Co. (FORD – News), Mr. Lohr’s choice was a nice win. But it illustrates a problem the company faces as it adds more attractive and upscale models to its Ford brand: Its own luxury line, Lincoln, is floundering.
Lincoln generated as much as $2.5 billion in annual gross profit in the late 1990s, driven by its Town Car and Navigator sport-utility vehicle, said a person familiar with the matter. In 1998, it was the top-selling luxury brand in the U.S., and sales topped 193,000 cars in 2000.
How far it has fallen. In 2009, Lincoln sold just 82,847 vehicles. So far this year the brand has slipped to the No. 8 spot among upscale makes, behind such names as Lexus, BMW, Mercedes-Benz and Detroit rival Cadillac. Ford doesn’t disclose whether Lincoln is profitable.
Turning around Lincoln is critical for Ford. The company, burdened by about $31 billion in debt, could use the outsize profits luxury cars typically generate.
Lincoln’s importance is further magnified now that Ford has decided to kill off Mercury, the 71-year-old nameplate whose sales have been dwindling for years. Earlier this month, Ford said it would stop making Mercurys by year’s end. Since Lincoln and Mercury are usually sold by the same dealers, these franchisees could struggle if Lincoln doesn’t bounce back.
With Mercury gone, Ford could put more resources into Lincoln—and indeed, it probably will have to if it aims to rejuvenate a brand whose marque has little resonance among younger car buyers. Lincoln’s popularity has been sliding precipitously for a decade.
Among many luxury-car shoppers Lincoln isn’t even a contender. Most of these people never even look at comparable Lincolns, according to data from Edmunds.com, a car-shopping website.
Carving out an identity for Lincoln against upscale rivals won’t be easy—especially if Ford-brand models start stealing the same customers.
Mr. Lohr, who lives in Houston, said he didn’t even consider Lincoln when he went car shopping. “They always seemed like a big boat with loose handling,” he said.
But he was taken by the look and amenities of the redesigned Taurus. The Ford Mr. Lohr took home sports pearl-white paint, a leather interior and 19-inch wheels—features that once would have been more common in Lincolns than Fords. But at $26,700, the Taurus was about $15,000 less than the Lincoln MKS, a sedan based on the same underpinnings and many of the same parts as the Taurus.
Ford Motor is widely viewed as a turnaround story. It made money in 2009 while General Motors Co. and Chrysler Group LLCfiled for bankruptcy, and it earned $2 billion in the year’s first quarter.
Under Chief Executive Alan Mulally, Ford sold off niche brands Land Rover, Jaguar, Volvo and Aston Martin to free up resources to rebuild the Ford division.
Phasing out Mercury is a further step in Mr. Mullaly’s “One Ford” strategy.
For the first five months of the year, Ford-brand sales rose 34% over the same period last year. But Lincoln remained sluggish, up only 11.5%. And the gains at Lincoln have a retro feel: Sales of its aging and soon-to-be-discontinued Town Car were up 17% while the newer MKS sedan slid almost 7%.
One problem with Lincoln is its aging audience. The average age of a Lincoln buyer is 64, compared with 52 at BMW, 56 at Mercedes-Benz and 58 at Lexus, according to J.D. Power and Associates.
Another is that Lincoln owners aren’t very loyal. Just 40% of Lincoln owners turn in their vehicle for another Lincoln, compared with 52% for BMW, 57% for Lexus and 66% for Mercedes, according to a 2009 J.D. Power study.
Then there’s the issue of Ford cannibalizing Lincoln. In May, 20% of buyers who traded in a Lincoln bought a Ford, up from 14% in May 2005, according to Edmunds.com.
In a recent interview, Ford Executive Chairman Bill Ford said he isn’t overly concerned about the issue, saying he’d rather have the sales one way or another.
Mr. Ford added that Lincoln will focus on the performance of its vehicles, but declined to talk about new models in the works, including whether Lincoln would introduce a rear-wheel drive model, which many customers say is needed to provide true luxury-car ride.
Lincoln dealers say Ford needs to do much more to revive the nameplate.
“The recent Lincoln products are very nice, but there isn’t much evidence that they have cut through the clutter,” said Earl J. Hesterberg, chief executive of Group 1 Automotive Inc., a major dealer network whose operations include Lincoln stores.
Mr. Hesterberg said Lincoln needs a flagship sedan, preferably with rear-wheel drive, that has features that aren’t found in Fords. “I don’t have a good understanding of what the key reason is to buy a Lincoln,” he said.
Ford is promising seven new or significantly improved Lincolns in the next four years, including a small luxury car and new MKZ midsize sedan. But it’s unclear how deep the commitment to U.S.-dominated Lincoln runs at an increasingly global, one-brand Ford.
In the last few years, Ford gave Lincoln models a bold new look as well as new three-letter names, all beginning with MK. But the brand was without its own marketing manager for more than a year as sales slid.
At the core of Lincoln’s problem has been the lack of brand identity. “The big question was how do we invest in the primary brand and build pride so that people say ‘I drive a Lincoln’ as opposed to ‘I drive a Navigator,'” one former company insider said.
IHS Automotive analyst Rebecca Lindland said another issue is many consumers associate Lincoln with the big. wallowing Town Car.
“That’s the car that brings you to the airport, that’s the car that you rent for prom night,” she said. “It’s a bad thing in that consumers don’t see it as an aspirational vehicle.”