Don't Read this review of the 2013 Lincoln MKZ

[akirby]

There is no point arguing with people who can't think logically and who don't understand long term business plans.

 

Ford had an entire company to save with the Ford brand. Lincoln won't kill or save Ford either way.

 

If you consider the low cost of unique top hats on high volume shared platforms and the $5k premium they're charging now it's not a leap to think they could be making money. They could drop prices or add incentives and get a lot more volume but they'd have no chance at profit. And that would hurt them when the new products do arrive.

 

They could focus on new vehicles and ignore the dealership experience but again that's not a long term success plan.

 

Ford has way more people dedicated to Lincoln now than ever before and no other in house brands to compete with. They have more unique styling and features in the mkz than ever before.

 

It's a marathon not a sprint. Patience.

[2005Explorer]

You dont know the costs lincoln has any more than the rest of us. It doesnt take a whole lot deep thinking to figure out lincoln is probably in red ink. This conversation has been going on for years on this forum alone and I dont see any significant changes in product or sales as a whole. The whole division looks like is been left on a vine like the Ranger just to bleed out. The perception of lincoln I have is a tarted up Ford product. Evidently, I am not the only one when you look at the sales.

 

It's easy to be negative when it comes to Lincoln, but I think we need to give them some time to actually roll out their updated line and see what happens before we dismiss the brand as too damaged to save. Right now the only new thing they have is the MKZ and other then it and the MKX the rest of the line-up is pretty much a mess. I think we all agree that products like the MKS, MKT and Navigator won't turn around Lincoln, but we haven't seen their replacements yet. Hopefully the MKC will come soon along with an MKExplorer and an MKN.

 

The brand might be too damaged to be saved, but we haven't seen much yet so I think it's too early to say it needs to be shuttered at this point. There is no doubt in my mind that if no progress is made in five years the lights will be turned off on Lincoln, but I think we should let them show us their new vehicles first.

 

With that said, I do wish someone around there would get over their love for the MK naming scheme. With a new MKC on the way and the rumor of the Navigator being re-named the MKN things are getting messy. MKZ, MKC, MKX, MKS, MKT, MKN... That's just a marketing mess.

[jasonj80]

The brand might be too damaged to be saved, but we haven't seen much yet so I think it's too early to say it needs to be shuttered at this point. There is no doubt in my mind that if no progress is made in five years the lights will be turned off on Lincoln, but I think we should let them show us their new vehicles first. With that said, I do wish someone around there would get over their love for the MK naming scheme. With a new MKC on the way and the rumor of the Navigator being re-named the MKN things are getting messy. MKZ, MKC, MKX, MKS, MKT, MKN... That's just a marketing mess.

 

Lincoln will be fine, perception takes a while to change but it can. Look at Audi, when VW started to turn around Audi it used VW platforms and had abysmal reliability. Is Cadillac ahead of Lincoln - yes but they are going on 10 years in their remake and still not come close to what Audi did in 10 years from the time it was reinvented. Lincoln will do fine when the MKC and MKX come out, it will give them some good volume units.

 

The MKC is really the first new Lincoln with the new designer, I'm still getting mixed messages if the MKC will be available in Hybrid form, one person I know in powertrain says yes it was added to the program, another in finance says no.

 

I know two people in California that have just bought MKZ Hybrids, one was a former Lexus ES driver and the other was looking between the ES Hybrid and the MKZ, both said it was worth the risk to try the Lincoln as it drove better and was cheaper than the new ES.

[RichardJensen]

It doesnt take a whole lot deep thinking to figure out lincoln is probably in red ink.

 

Okay. What costs are putting Lincoln products in the red? Tooling amortization? Product development independent of expenses amortized over Ford volume? SG&A? What?

[RichardJensen]

How stuff works:

 

- The expenses involved in selling a car can be broken down into three broad categories:

 

1) Cost of goods sold

 

2) Amortization

 

3) SG&A (sales, general, and administrative expenses).

 

- Cost of goods sold is, broadly speaking, the cost of materials, subassemblies, labor, and physical plant costs (electricity, water, property taxes, etc.)

 

Cost of goods sold are divided into two bins, fixed and unit.

 

Fixed costs are costs that do not vary directly based on the number of units sold, even though they are somewhat variable. Labor is a fixed cost, in that if you are running two shifts, the labor costs the same if you're making 10 widgets a day or 1,000. It does, however, vary based on the number of shifts you're running.

 

Unit costs are, typically, items that are purchased in order to manufacture your product (i.e. steel, headlamps, tires). Depending on what you're manufacturing, typically fixed costs can be unit costs. For instance, water may be treated as a fixed cost in assembling vehicles, but it is a unit cost if you're manufacturing, say, beer.

 

- Amortization costs

 

This is the per unit cost of items that are purchased as depreciating assets. It is also used between business divisions to determine if a particular project is profitable.

 

If a business buys $100M of equipment to manufacture widgets, that $100M purchase is not count as a loss. This is because you have purchased an asset that is worth $100M.

 

Now, over time that asset will depreciate, and--in simplified terms--you deduct the cost of that depreciation from each unit you sell. If $100M of equipment depreciates $10M in a year and you manufacture 10M widgets in that year, you have an amortization cost of $1 per unit. The cost of the equipment purchased is recognized on a per unit basis.

 

There is another class of amortization costs that is applied to industries where the 'first unit' cost is extremely high.

 

"First unit" cost is all the money that has to be spent to build the first unit. It is not a term that shows up in financial reports because most of these costs are amortized, or deducted from subsequent units over the life of the product.

 

So, some of your 'first unit' cost is that tooling, and we've discussed how that expense is deducted.

 

What about labor and other expenses incurred to develop that product?

 

Here it gets a bit tricky.

 

Try to think about this part as though there are two companies:

 

Bob's Widget Development Company & Bob's Widget Manufacturing Company.

 

Bob's Widget Manufacturing Company hires Bob's Widget Development Company to develop a new widget.

 

It costs $100M to develop that new widget.

 

So Bob's Widget Manufacturing Company (BWMC) owes Bob's Widget Development Company (BWDC) $100M, right?

 

Okay, so BWMC expects to use BWDC's design for 10 years, during which time they expect to sell 100M widgets with that design.

 

So, BWDC books $100M in accounts receivable (because BWMC owes them $100M for the design) which offsets the $100M in cash spent to develop that widget.

 

Now BWMC has acquired the right to use this design. That right is worth $100M, but it too is a depreciating asset. Because the design is only expected to last ten years, the design will be worthless at the end of that tenth year.

 

 

So every quarter that asset loses some of its value, and the decrease in value is deducted from each unit sold in that quarter.

 

Okay, assume that both businesses are owned by Bob. This is what happens at a company like Ford. Ford's product development unit engineers products that are manufactured throughout the world. The cost of product development is recognized on a per unit basis, not all at once.

 

 

 

Now: What happens if Bob sells 120M widgets instead of 100M?

 

His depreciation *costs* are the same each quarter, right? So if he sells more units, then his cost per unit is lower and he's making more profit per unit.

 

 

 

 

Well, what happens if Bob only sells 60M widgets?

 

When Bob realizes that he's not going to reach that 100M target, he is required (if he's publicly traded) to recognize that expense in that quarter.

 

Now things aren't so good.

 

With only 60M units sold, he still has $40M in equipment costs to amortize and $40M in development costs to amortize.

 

Now say Bob sells 3M units that quarter.

 

If business was going according to plan, he'd report $6M in expense from equipment and development amortization.

 

But since business is going poorly, he has to report that $6M plus an additional $80M in 'one-time expenses' which in this case are called 'write-downs' or 'write-offs'.

 

 

--

 

Sales, General and Administrative is the cost of executive salaries, the salaries of administrative staff, the cost of coffee, paper, pens, computers, printers, toner, paper clips, carpet, window cleaning--all sorts of you-name-it involved in the daily operation of a business apart from the cost of goods sold and the amortization of 'first unit' expenses.

 

It also includes the cost of sales. In automotive terms this is the cost of incentives and advertising.

 

---

 

This is, of course, a very simplified presentation, but it should give you a basic understanding of how accounting works for manufactured goods.

 

Now, I'm not going to go into detail about why I think Lincoln is turning a profit. Suffice to say, the very things that people criticize about Lincoln are things that make it easier for Ford to turn a profit on Lincoln.

 

---

 

I would also like to point out that not all opinions are created equal, and that when I say that I believe Lincoln is turning a profit, it's with some understanding of how corporate accounting works, and that I have yet to see a similarly constructed argument supporting the conclusion that Lincoln is running at a loss.

Edited August 4, 2013 by RichardJensen

[Edstock]

Thanks for the re-fresh on the basics.

[akirby]

Excellent description. Too bad the negatards won't read it or understand it.

[RichardJensen]

If nothing else, it establishes my credentials to discuss the subject.

[EBFlex]

And yet, here you are, ready to make a judgment after one car has been released since Ford canceled Mercury and hired 200 people to overhaul Lincoln.

 

All I said was Lincoln is not turning a profit right now. You have provided nothing to refute that. You think they are, I think they are not. We both don't actually know.

 

If nothing else, it establishes my credentials to discuss the subject.

 

But yet provided not one source on how that applies in any way to Lincoln and if they are turning a profit at this time. Basically you defined a few terms and gave an example.

[Extreme4x4]

Lincoln was turning a profit as recently as less than 1 year ago. Proof of such came from a person intimate with Fords financials because he was involved in Fords mortgage. Once Ford paid their mortgage down to the point of not being collateralized, he was no longer involved.

 

So, I think that a first person narrative is good enough for me. Are they still making a profit, I don't know. I do know that MKZ ATP's are up huge. However, short of Bill Ford knocking on your door and showing you the detailed accounting for Lincoln, I don't think you will believe it. So, I will just accept that it is impossible for you to be satisfied on the subject of Lincolns profitability. Why?? Because you have stated in the definitive that they are not making a profit.

 

Thus, I ask you this one question, since you are demanding proof of others, that they cannot provide. Please show your proof that they are operating at a loss.

[RichardJensen]

You think they are, I think they are not. We both don't actually know.

 

Like I said, not all opinions are created equal. You have absolutely no reason to believe what you believe regarding Lincoln. I have sound reasons to believe what I believe.

[akirby]

You'll never convince the negatards of anything positive for Lincoln. Whatever Lincoln does won't be enough.

[EBFlex]

Like I said, not all opinions are created equal. You have absolutely no reason to believe what you believe regarding Lincoln. I have sound reasons to believe what I believe.

 

That smacks of arrogance. You haven't seen any of Lincoln's financial statements either. We know exactly the same amount of information...which is we know nothing. Unless you are employed in the industry and have access to information the average person does not, your opinion is no more valid than mine.

[RichardJensen]

Unless you are employed in the industry and have access to information the average person does not, your opinion is no more valid than mine.

 

I know what I'm talking about. It is increasingly clear that you don't.

 

I don't care if you consider that statement arrogant. "I know what I'm talking about" is a statement of fact. I know how this industry works. I know how this industry keeps its books. Broadly speaking, I know how Ford keeps its books. These are all statements of fact. Testable premises that can be demonstrated to be correct.

 

If I were arrogant, I would not have bothered to type out a lengthy, yet incomplete, explanation of how corporate accounting works in this sector. If I were arrogant, I would have insisted, from the first, that my knowledge was superior to yours. If I were arrogant, I wouldn't bother to explain here that the difference between us consists of knowledge--which ANYONE CAN ACQUIRE with a bit of diligence and effort.

 

If *anything* I would consider you arrogant for refusing to acknowledge the difference between us.

Edited August 5, 2013 by RichardJensen

[EBFlex]

I know what I'm talking about. It is increasingly clear that you don't.

 

I don't care if you consider that statement arrogant. It is a statement of fact. I know how this industry works. I know how this industry keeps its books. Broadly speaking, I know how Ford keeps its books. These are all statements of fact. Testable premises that can be demonstrated to be correct.

 

If I were arrogant, I would not have bothered to type out a lengthy, yet incomplete, explanation of how corporate accounting works in this sector. If I were arrogant, I would have insisted, from the first, that my knowledge was superior to yours. If I were arrogant, I wouldn't bother to explain here that the difference between us consists of knowledge--which ANYONE CAN ACQUIRE with a bit of diligence and effort.

 

If *anything* I would consider you arrogant for refusing to acknowledge the difference between us.

 

Ok, I'm not going to argue. You're entitled to your opinion as I am mine. I do not believe Lincoln is profitable right now. That's not being a "negatard" (real mature, name calling will sure show me), it's just an opinion. Quit taking the internet so seriously, unless of course you have some actual proof that they are or are not profitable.

[RichardJensen]

Quit taking the internet so seriously

 

What does that even mean? When is intellectual laziness justified? My goodness, impose some order on your thoughts, don't just type whatever comes into your head and then say that you don't have to think about things because it's the internet!

[akirby]

Some of us understand how corporate finances work and it's not difficult to extrapolate basic financial facts based on shared platforms and shared production facilities vs. sales volumes and msrp.

 

When you make statements like "I don't think Lincoln is profitable" without any facts or even theories to back it up is bad enough but when you refuse to consider well thought out arguments and theories from people who do understand corporate finances and the automobile industry and pass it off as "that's just my opinion" - that makes you a negatard.

 

If you don't want to be a negatard then tell us why you don't think Lincoln is profitable right now.

[papilgee4evaeva]

"I don't think Five Guys makes good burgers" is an opinion since it is entirely subjective and, as such, cannot be proved. Similar statement: "I don't think Lincoln's designs are that great."

 

"I don't think Lincoln is profitable" cannot be a valid opinion because evidence exists either way as to the profitability of the brand. Similar statement: "I don't think the atomic number of carbon is 6." Well, it can be proven in either direction.

 

EBFlex, your statement is not an opinion but a presumption. One that you refuse to support with any kind of facts whatsoever. Don't act confused when you make a statement that can be proved or disproved, refuse to back it up soundly, and then play the victim as you get flamed by the entire board.

Edited August 5, 2013 by papilgee4evaeva

[RangerM]

Does it really matter if Lincoln is profitable today? Given its continued existence it seems like Ford believes it will be in the future.

 

That may mean no more Town Cars for now, but tastes are always changing, so we may yet see the types of product that says 'Lincoln' to all of us.

[EBFlex]

Some of us understand how corporate finances work and it's not difficult to extrapolate basic financial facts based on shared platforms and shared production facilities vs. sales volumes and msrp.

 

When you make statements like "I don't think Lincoln is profitable" without any facts or even theories to back it up is bad enough but when you refuse to consider well thought out arguments and theories from people who do understand corporate finances and the automobile industry and pass it off as "that's just my opinion" - that makes you a negatard.

 

If you don't want to be a negatard then tell us why you don't think Lincoln is profitable right now.

 

I already stated why that is my opinion. Of course you will dismiss it from your perch atop the automotive high ground despite not having any numbers from Lincoln in your mitts.

 

And, please, show us how well you know the industry by name calling. It really adds to your credibility.

[IMSA-XJR9]

All I said was Lincoln is not turning a profit right now. You have provided nothing to refute that. You think they are, I think they are not. We both don't actually know.

 

 

But yet provided not one source on how that applies in any way to Lincoln and if they are turning a profit at this time. Basically you defined a few terms and gave an example.

 

As of this past January it was stated that Lincoln was/is profitable . . . .

 

 

Lincoln can afford to be patient. It is profitable today, even on modest sales.

http://m.usatoday.com/article/money/1830173?preferredArticleViewMode=single

[fordmantpw]

And, please, show us how well you know the industry by name calling. It really adds to your credibility.

 

Calling you a negatard isn't name calling, he's just stating his opinion, and you have shown nothing to disprove that opinion.

[chevys]

Calling you a negatard isn't name calling, he's just stating his opinion, and you have shown nothing to disprove that opinion.

Thats your opinion. Personally, I think its petty. See how that works.

[phil1336]

I understand geographic sales of certain Model Vehicles does not make for a Corporate decision on to kill off or continue with a specific line. I`m sure that Ford Flex and Ford Edge sell better in some parts of the Nation then others. Here is South Florida, the number of (new) late Model Lincoln`s 2012/2013 far outnumber Cadillac`s. That said, high end Audi`s, BMW`s, Mercedes-Benz, Bentley`s, Lexus, and other "premuim' Cars certainly take their share of the affluent Market Share. The Mercury Marquise was killed off by a majority of older retiree`s switching their loyalty to Toyota Camry`s and the to Hyundai Sonata`s and now looks to be swinging back somewhat to the Camry. The Corporate "Bottomline" ultimately seals a Car Models fate. Bashing and assuming that Lincoln is destined to disappear like the Dinosaurs of yesteryear is I think a bit premature.

[akirby]

I already stated why that is my opinion. Of course you will dismiss it from your perch atop the automotive high ground despite not having any numbers from Lincoln in your mitts.

 

And, please, show us how well you know the industry by name calling. It really adds to your credibility.

 

That's not an opinion - it's a statement of fact and you haven't provided any theories or assumptions to back it up. You can't just make factual statements with nothing to back it up and get off the hook by saying "it's my opinion".

 

USA today said Lincoln was making a small profit (based on interviews with Ford executives). Every vehicle that Lincoln sells today is based on a shared platform built in a shared facility with good utilization. Lincolns are also selling for around $5K more than the corresponding Ford models not counting more expensive options that are available that drive even more profit.

 

THEREFORE one can assume that Lincoln is breaking even or turning a very small profit right now.

That is deductive reasoning using publicly available data and common sense.

 

The only fair criticism of Lincoln the last 2 years is that they are moving slowly to get new products out the door and to upgrade dealerships. However, that is a business decision that says Ford is not going to "bet the farm" and throw huge amounts of cash at Lincoln in a frenzy. Instead, they're starting with the basics - hiring a dedicated design staff and dedicated Lincoln business team and starting from the ground up with the dealers. This won't win any popularity contests with folks who think Lincoln has to be fixed immediately - but in the long run it will keep Lincoln profitable as it slowly rolls out revamped vehicles and service over the next several years.