What happens when a Detroit car company moves to California?

What happens when a Detroit car company moves to California?

What happens when a Detroit car company moves to California?

Moneybox
Commentary about business and finance.
Nov. 27 2002 4:49 PM

Mercury Poisoning

What happens when a Detroit car company moves to California?

Earlier this month, news dribbled out that Lincoln-Mercury, the ancient division of Ford that caters largely to ancient drivers, was moving its executive offices from Irvine, Calif., back to Detroit.

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Thus ended—with a whimper, not a bang—one of the stranger chapters in the annals of corporate reinvention.

In the mid-'90s, Lincoln-Mercury was a wasting asset. Its 1997 sales of 560,000 units—stodgy sedans like Lincoln Town Cars, Lincoln Continentals, and Mercury Sables—accounted for only 4 percent of the U.S. market. The typical owner of a Lincoln Continental was 64 years old.

So in 1998, hard-charging Ford CEO Jacques Nasser banished the brand from Michigan, sending the unit's executive offices off to the rejuvenating climes of Southern California.

Several months after the move, I visited Lincoln-Mercury's Irvine headquarters. And at the time, the move struck me as one of those intricately plotted corporate moves that seems inspired at first blush but whose coherence fades within hours—sort of like Price Waterhouse Cooper Consulting's short-lived decision to change its name to "Monday."

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The rationale for the move was this. California is both a center of American car culture and a wellspring of consumer trends. As the world's seventh-largest economy, California represented a massive market, and one in which high-end imports were eating Lincoln-Mercury's lunch. At the time, Lincoln-Mercury had just a 2.6 percent market share in the Golden State. What's more, Southern California was a growing center of car design. Virtually every manufacturer except General Motors has design facilities in California. The Mazda Miata and the new VW Beetle were born there. Moving to Orange County would allow Lincoln-Mercury to fish in a deeper pool of design and marketing talent. It might attract the sort of spiky-haired designers who would pen cutting-edge stylings in the a.m. and spend the lunch hour catching waves.

Oddly, though, Ford sought greater creativity by locating Lincoln-Mercury's headquarters in one of the nation's foremost examples of enforced conformity. Founded in 1971, when it was carved out of a giant ranch 40 miles south of Los Angeles, Irvine is the nation's largest planned community—as well as its most-planned. Drive through the carefully landscaped streets, past mile upon mile of pristine, harmonious town-house and condominium developments, and you'll search in vain for a hint of creativity. In fact, zoning codes in Irvine essentially prohibit individual expression in paint color or landscaping. You will find no kandy-kolored tangerine-flake streamline babies here.

Entrepreneurship? The carefully demarcated commercial areas are filled almost entirely with chain restaurants and stores. (This is a place where Chinese food is P.F. Chang's.) At root, Irvine is a kingdom of well-ordered surburban ersatz—it makes the set of The Truman Show seem gritty.

Even so, for Lincoln-Mercury, which had been based in the imperial Renaissance Center, the move to a low-slung building in a vast office park was a radical departure. One salutary effect: As he sat in his corner office—some corporate customs managed to survive the trek westward—the unit's CEO could look out at freeways on which cars of all shapes, sizes, and makes were whizzing by, virtually none of them Lincoln-Mercuries. A pernicious effect of the U.S. auto industry's concentration in Michigan is that those who work there go through life believing that the market loves their products. (I grew up near the headquarters of Oldsmobile and was stunned to learn, upon leaving home, that Cutlass Supremes were not the vehicle of choice.) Nothing focuses the mind like constantly watching a marketplace in which your product is routinely shunned.

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To be sure, the creatives—the marketing and PR types—certainly seemed happier in California. "I wake up every morning and thank God I'm in California," as one executive put it while we ate lunch alfresco. Tellingly,many chose not to live in Irvine—which some found a bit creepy—and instead made their homes in the seductive hills between Irvine and the Pacific Ocean.

At first, the California dream held out great promise. In 1999, Lincoln-Mercury had a banner year. And in 2000, Ford relocated the headquarters of its Premier Automotive Group—which includes Jaguar, Volvo, and Aston Martin—to Irvine as well.

But in the end, the change in scenery didn't change the market dynamics of Lincoln-Mercury. The brand's elderly image, which had been building for years, didn't magically dissipate simply because the headquarters had moved. Wedged against the Pacific Coast, management couldn't clamor quite as loudly or effectively for resources and attention from Detroit. Lincoln-Mercury remained an over-the-hill mare in Ford's stable of brands.

Lincoln and Mercury failed to develop any breakthrough products or shift their core markets. The bottom fell out once the economy stalled. Sales of Lincoln and Mercury vehicles dived from about 590,000 in 2000 to 478,000 in 2001, according to Ford's annual reports—a stunning 19 percent drop. Meanwhile, the departure of Jacques Nasser and the elevation of princeling Bill Ford meant the sponsor of the move was no longer running the show.

It's very hard to kill automobile brands, because doing so means walking away from billions of dollars of investment in dealers' infrastructure and brand equity built up over decades. But with Ford in crisis, one can't help but think that Bill Ford calling Lincoln-Mercury back to Detroit was a sign its days are numbered. The Irvine hegira was too small a solution for too large a problem. It doesn't matter if Lincoln-Mercury is in Detroit, Irvine, or Transylvania: No one wants to buy its cars.