How Ford Became Synonymous With Failure
Nov 19th 2012 11:30AM
Updated Nov 19th 2012 11:36AM
On this day in economic and financial history...
One of the worst things any company can experience is a product or brand launch so wretchedly unpopular that it later becomes synonymous with failure. Each product category has its own master flop, but on Nov. 19, 1959, the auto industry's biggest disaster finally drew to a close. That was the day Ford (NYS: F) finally ended the Edsel.
The Edsel's many problems are well-known to car guys and marketing pros alike. In the run-up to its launch, the Edsel was marketed like an iPhone on wheels, a revolutionary new machine that turned out to be anything but. The Edsel lineup offered 18 models targeted at virtually every segment of the population without actually appealing to any of them. The car's front grill, an infamous "toilet bowl" or "horse collar" design, was the source of much mockery -- and some psychologically inclined commentators have noted its similarities to the female nether regions. No wonder few people wanted to drive it.
Ford sold about 84,000 Edsels over its three-year run -- far below the breakeven number and a sorry statistic for any major automaker. The company is estimated to have lost $350 million on the project, or nearly $3 billion when adjusted for inflation.
The evils of Big Oil
OPEC's oil embargo pushed American politicians into a rare bout of swift action toward the end of 1973. On Sept. 19, 1973, the Senate overwhelmingly voted to grant President Nixon sweeping emergency powers to deal with the crisis, including rationing authority, if necessary.
In remarks during the voting debate, two senators made arguments that would become the cornerstone of modern Democratic stances in the fight for energy independence. Senator Thomas J. McIntyre, D-N.H., claimed:
Today's fuel crisis ... can be laid directly to the betrayal of the public trust by the major American oil companies. I am charging these giants of the industry with gross incompetence, stubborn blindness, with selfishness, and with a lack of foresight that seems totally incredible. ... While the crisis is hurting ... the major oil companies are reaping windfall profits of historic dimensions.
There were three major American oil companies on the Dow Jones Industrial Average (INDEX: ^DJI) in 1973: Exxon, now ExxonMobil (NYS: XOM) ; California-based Standard Oil, which later changed its name to Chevron (NYS: CVX) ; and Texaco, which merged with Chevron in 2001. Exxon, the largest of the three, would later report 1973 net income of $2.44 billion, an impressive 59% gain over 1972's result, and more than double the 27% increase in its annual revenue from 1972 to 1973. Texaco's fourth-quarter profits in 1973 were 72% higher than in the same period in 1972. McIntyre's anger was a bit misplaced; by the end of 1974, when the oil shock had ended, these oil majors all reported lower quarterly profits.
Senator Charles Mathias, Jr., R-Md., said that he was "a little distressed that we've heard so little from Detroit on this debate" and that it "would have been a help if we heard from the auto manufacturers that an efficient small car would be developed -- that instead of building bigger autos, they will soon be building more efficient autos and give Americans the greatest mileage per gallon."
This concern was well-founded. The American auto fleet hit fuel-efficiency rock bottom in 1973 with an average of only 11.9 miles per gallon. Consumer-oriented passenger vehicles only averaged 13.3 MPG. Automakers did begin to improve their vehicle fuel efficiencies, but very slowly. By 1991, the American auto fleet had improved to 16.9 MPG, with passenger vehicles up to 20.1 MPG. However, one American automaker made some impressive gains at the upper end of the scale by that point: General Motors (NYS: GM) claimed six of the top 10 spots for fuel-efficient cars in 1991, with all getting more than 40 MPG in city driving.
Ford has made impressive gains in the two decades since 1991, and the average fuel economy for its cars is now better than GM's. However, the American icon still lags many Asian automakers, despite a concerted push to sell more electric and hybrid vehicles. Can Ford overcome foreign competition to be the world's most efficient (and innovative) automaker again? This question, and many others, are answered by the Fool's exclusive Ford research service. Our analysts are dedicated to staying on top of Ford's important moves, so shareholders like you will never be caught off guard by another Edsel fiasco. Click here to sign up for a full year's subscription today.
The article How Ford Became Synonymous With Failure originally appeared on Fool.com.Fool contributor Alex Planes holds no financial position in any company mentioned here. Add him on Google+ or follow him on Twitter @TMFBiggles for more news and insights. The Motley Fool owns shares of Ford Motor and ExxonMobil. Motley Fool newsletter services have recommended buying shares of General Motors, Ford Motor, and Chevron. Motley Fool newsletter services have recommended creating a synthetic long position in Ford Motor. The Motley Fool has a disclosure policy. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.
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