Should Ford Close Lincoln?

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Chrysler, arguably the most successful of The Big Three in terms of recent sales growth, has decided that it does not need, or cannot support, a luxury brand. After years of failure, Ford Motor Co. (NYSE: F) may want to adopt the same approach and close Lincoln. Demand for Lincoln cars is far too modest, and the level of competition in the luxury car market in the United States is extraordinary, led by some of the world’s most powerful brands.

There is precedent for American auto manufacturers choosing to discontinue unsuccessful divisions. General Motors Co. (NYSE: GM) closed Pontiac and Saturn in 2009. The restructuring of the nation’s largest car company was a major catalyst for the decisions. That does not negate their wisdom.

The most powerful reason to support an end to Lincoln is that its sales sit far behind those of Mercedes, BMW, Audi and Toyota Motor Corp.’s (NYSE: TM) Lexus. BMW sold more than 127,000 cars and light trucks through the first five months of the year. Mercedes sold more than 134,000. Lexus, after falling behind BMW and Mercedes for several years, has made up almost all of that lost ground. Lincoln sold just over 37,000 vehicles in the same five months, up 20.9%.

These four very successful luxury brands sit on top of a market with half a dozen other competitors. Among them are Honda Motor Co. Ltd.’s (NYSE: HMC) Acura, Nissan’s Infiniti, Cadillac, Porsche, Jaguar and Land Rover. That means 10 mainstream luxury brands, in addition to Lincoln, are fighting for the wealthiest car buyers.

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Lincoln has two other disadvantages. One is its limited model line. The other is the average age of its buyers. Lincoln offers six models, which is well below the number of its largest competitors. IHS Automotive reported that in 2013 Lincoln buyers had an average age of 61, the oldest of any brand in the industry. That was unchanged from 2011. The average luxury car buyer in 2013 was just under 52 years old. Lincoln is not replacing older buyers with younger ones, which has been among its stated goals.

Lincoln does have two advantages. One is the perception that it builds high-quality cars. The other is that Ford has huge marketing and product development budgets. However, neither has made Lincoln a successful luxury brand. These are signs that Ford cannot overcome its luxury car division’s failure.

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