Attila Szabó, Ford’s chief executive for the Czech Republic and Hungary, tells the Budapest Business Journal how the US automaker overcame the COVID pandemic.
BBJ: The European automotive market saw an 18% decline in 2020, according to the Economist Intelligence Unit, which expects a 5% increase in the field this year. How did Ford Hungary behave last year?
Attila Szabó: In the EU 20, the decrease was closer to 20%, of which 18% for commercial vehicles and 22% for passenger cars. Since the utility vehicle segment is as important as the passenger segment at Ford, this has helped our sales somewhat. In Hungary, the automotive industry as a whole fell by 18% last year, with passenger cars again accounting for a slightly larger share. With 18,800 vehicles sold, Ford achieved the best results in the Hungarian market, where overall sales amounted to 150,000 in 2020. In line with our strategy, commercial vehicles (60%) took the lead, which equates to to 30,000 cars sold.
The market share of commercial cars has increased over the past three to five years. In Europe, Ford’s share of this market was 14.6% in 2020. Here too, we are witnessing a constant increase in sales and Ford has been the market leader for more than six years. It is an important part of our strategy to maintain this position and improve our share at European level. Electrification is also gaining ground in our utility range: many of our vehicles are now also available in hybrid or electric versions.
BBJ: The pandemic did not seem to affect the deployment of new models; Ford released a lot of them last year.
ASz: The first wave hit us hard: our factories were closed for a month, which caused the cash flow to stop, but the suppliers had to be paid anyway. One area where we didn’t compromise was product development: our designers and engineers were working from home and as a result there was no disruption in product deployment. The only problem here was the homologation; this is done by external companies that have been closed, so here we encountered some difficulties, but ultimately we were able to roll out new models. In the automotive industry, planning goes beyond a year; we usually plan at least two years in advance. This is why a few months of disruption will not stop the procedure. With dealerships closing in several countries, we had to be creative in delivering the cars to customers, but the whole process was not interrupted.
The question here is how manufacturers can finance this period, how well capitalized they are, and how they can reduce costs. One lesson companies learned during the 2008 recession was to always have enough cash and cash on hand; if we hadn’t had enough reserves, we would have been more affected in the second quarter. In the third quarter, we returned to where we were when the pandemic started. It is an advantage to be a global company; the recovery of the American market has helped us a lot.
BBJ: Ford raised its prices in this sensitive time when people’s finances were also less stable.
ASz: The weakening of the forint and the uncertainty surrounding it played an important role in the rise in prices. I am also closely following the Czech market: even there, when the krone rebounded, it remained stable instead of the forint, where you see a lot of ups and downs not only against the euro but also against the dollar. The real inflation rate is higher than what appears in official statistics, which has also had an impact on our prices.
Technology also makes cars more expensive. The increasingly stringent safety and emissions requirements of the European Union are another consideration that we must take into account. We aim to achieve a five-star EURO_NCAP rating in most of our models, which means incorporating a number of features that will increase our costs. . Meeting emission requirements further increases the price, although installing a particulate filter in a diesel engine is not something customers experience when they get into the car and are for which they are. willing to pay extra.
The same is true for electrification. Of the 150,000 cars Ford sold on the Hungarian market, plug-in hybrids and fully electric cars accounted for around 3,000 each. Less generous public subsidies and a smaller quota perimeter than in Western Europe, as well as lagging infrastructure, explain why this market segment is growing more slowly in Hungary. Given this, plug-in hybrids are better suited to this market and should be subsidized, as they could serve as a bridge until infrastructure and scale allow for greater adoption.
As a result of the above, a general model used by the masses can easily have a price tag of HUF 10 million.
BBJ: What effect will that have on car sales this year?
ASz: We expect an increase of 5-10% this year, which is still lower than in 2019. We do not expect a big increase in the commercial segment as companies are planning more carefully. Some may replace older models just because it’s more cost effective to do so, but small businesses are less likely to buy new cars this year.
Based on the cost of ownership, companies that buy commercial vehicles are more likely to replace their existing fleet; we have offers that make even a three year old model worth changing. The availability of different financing options can also boost sales. Ford Credit is a payment system established in Hungary to assist dealers and customers.
We also tried a six month deferred payment where you don’t have to pay in the first six months or a first installment. Ford first introduced this option in the UK, where it has proven to be very popular; here, however, customers were reluctant to choose it. The system in Britain is different, however; There it is not uncommon for someone to use Ford models throughout their life, constantly changing models and paying the monthly fee. In our region, people are less open to different financing options, ownership is still prevalent, and there are other payment options. Operational leasing only works with a specific part of the business segment, whereas in Denmark, for example, even SMEs use this option.
BBJ: What is the distribution of the different payment systems in Hungary?
ASz: For corporate clients, financing is typical, while for individuals it represents around 30%. Many still pay in cash (they may have set aside for that), rather than considering other options that might save them costs.
BBJ: Beyond sales, what other sources of income, for example, a partnership with carsharing companies or new software, do you have?
ASz: In Hungary, the approach to these innovations is again somewhat different from the rest of Europe. Here, FordPass, a mobility app with connectivity services, is already available, and a subscription version will also be launched soon. However, as with other innovations, we are only at the beginning and we must first convince our customers to install the application. The business case behind this is to provide many innovative commodity services to customers for free, but for which, when we get to the point where electric cars are becoming more prevalent than today, we can start charging. Anything that people have to pay extra for takes a longer time to grow in this region, but this is how automakers will generate income in addition to sales; through the user experience and associated services. It takes a lot of investment up front: creating and installing the technology and getting people to accept it and use it until you get to the point where they would miss it if it wasn’t there.
This article first appeared in the print issue of the Budapest Business Journal on May 21, 2021.