The financial crisis and ensuing recession caused a lot of pain for Detroit's Big Three automakers, Ford (NYSE:F), General Motors (NYSE:GM) and Chrysler. Inefficient operations, massive incentives, and drastic declines in sales ended in two bankruptcies – with Ford the lone survivor – and a huge cash crunch. The companies are still feeling some of the after effects of the cash crunch; it's a big reason GM has the oldest vehicle lineups in the industry. With a limited amount of cash, redesigning and developing vehicles was very limited for all three automakers, and is also the reason Ford's Lincoln brand was left for dead.
Finally Ford is able to spend some cash to help revive its Lincoln brand – which will be an important development for the company and its investors. How will Lincoln create a valuable product, generate consumer demand, and top it off with better service?
Believe it or not Lincoln was the top-selling U.S. luxury brand in 1998, riding on the success of its Navigator. Since that high note, the only thing the brand has consistently done is tumble in sales. Last year Lincoln sold just over 82,000 vehicles – less than the Mustang sold by itself – and only enough to rank as the eighth-best luxury brand.
One of the first lessons I learned from a former chief marketing officer colleague was how important it is to create pull-through. You can create the best product in the world, but if you don't create demand and a call to action, then the buyers will never pull the trigger.
Lincoln is attacking this issue in a couple different ways. First, it's creating consumer demand through yet another advertising campaign, on which it's spent over a billion dollars. This past February's Super Bowl ad wasn't a home run by any means, but whatever demand it generated fell on deaf ears because models of the MKZ weren't available until months later.
In addition to pressing the reset button on its advertising and marketing, Lincoln is sharpening its focus on a different consumer – a younger, well-educated, and wealthier consumer. Lincoln is even training its salespeople, through a Lincoln Academy, on how to talk the talk with its new target audience. This training is aimed at what Lincoln executives see as an opportunity – to improve service and the shopping experience. Lincoln wants a more premium feel for a more sophisticated buyer and thinks that its competitors aren't hitting that mark.
While those tactics will help create the necessary pull-through demand, for Lincoln's ambitious comeback to reach fruition, it'll need vehicles that walk the walk. As you can see below, the MKZ was a much needed redesign and is helping push the entire brand higher. It's merely the first of four steps to come over the next four years.
Lincoln's next step is to enter another fast-growing segment: premium crossover. It debuted the Lincoln MKC this year in Detroit at the North American International Auto Show to enter this segment. It's not a fluke that these two luxury segments were the first ones attacked by Lincoln; in the standard versions, the Fusion and the Escape have set record sales months for most of the year.
After those two steps, it's believed that Lincoln will produce a luxury ride based on the Ford Focus. After that it isn't clear what Lincoln is planning, but here's what makes sense to me. We know that the U.S. auto market in general, and the luxury segment in particular, is surging. We also know that China is the world's largest and fastest growing automotive market today. One vehicle that could sell in both markets would be a smaller luxury vehicle, and that has been rumored to be under consideration for 2016.
It could be what Matt VanDyke, who heads Lincoln's development, hinted toward in an investor conference. He said that there are vehicle markets "that we're not playing in today that we can enter that are high-volume segments and growing fast."
Lincoln's revival is going to be a very important piece for Ford if it wants its share price and value to continue to increase. During the recession, and Ford's restructuring turnaround, CEO Alan Mulally cut many brands, keeping only its Blue Oval namesake and Lincoln's luxury line. It did this because the two brands won't compete or cannibalize sales from one another – Lincoln offers pure incremental sales and profit gains. Now that Ford has the cash to make the same brand revival with Lincoln, as it did with Ford, we're seeing the plan take place. Higher-quality vehicles are being produced with economies of scale. Demand is being recreated for a luxury line left for dead, and salespeople are being trained to connect the two ends of the equation.
Fool contributor Daniel Miller owns shares of Ford and General Motors. The Motley Fool recommends Ford and General Motors. The Motley Fool owns shares of Ford. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.