GLOBAL FINANCE

likely to dominate the market in years to come. Ford and its rivals in
the ``Global Six'' have three main strategies they can adopt.

1 Reducing the asset base to free capital for more focused investment.

In 1998, Ford gathered all of its component divisions into a single
entity and created Visteon as a global supplier, retaining the core
businesses of engine, chassis, and assembly. Visteon was then ``spun
off'' as a separate public company in 2000 by distributing its shares
tax-free as a dividend to existing Ford shareholders; one effect of
this was to reduce the number of employees by some 7%. General
Motors also adopted this strategy by divesting Delphi.

2 Acquire other firms and build alliances. This is again principally

an effort to cut costs while gaining control of more product brands.
There has been a frenzy of industry mergers in the last few years,
with Ford purchasing Land Rover for $2.6bn in 2000, Volvo's car
business in 1999 for $6.45bn and Kwik-Fit, a European light repair
chain, in 1999 for approximately $1.4bn. With the advent of e-
commerce threatening to shorten the supply chain, Ford has entered
into a purchasing joint venture, Covisint, with GM, DaimlerChrysler,
Renault and Nissan, intended to create a business-to-business supplier
exchange on a single global Internet portal. This move could reduce
manufacturing costs by up to $3000 per vehicle. Covisint hopes
to become the world's largest virtual marketplace, moving all auto
commodity purchases onto the net. If it is successful, more e-alliances
are to come in distribution, retailing, and vehicle marketing.

3 Making superior products. Customer loyalty is particularly valuable

in the auto industry, where it is estimated that the cost of marketing a
product to an existing customer is about 20% of attracting a new one.
A ``superior'' product can be defined in many ways, but it essentially
revolves around customer perception which varies internationally.
US consumers want convenience, Europeans need fuel economy and
the Japanese require compact vehicles, for instance.

R&D from basic research in materials and methods to vehicle

design is vital. By distributing the R&D role globally, there is
an opportunity to take advantage of local pockets of expertise
for all vehicle programs, and to ``localize'' designs based on global
platform standards and common components for the local consumer.
The R&D challenge is to find ways of fulfilling these needs while