Ford Plans Small-Car Retooling

DEARBORN, Mich. -- Ford Motor Co. is preparing plans to retool some U.S. plants to produce small passenger cars that the company has been making and selling mainly in Europe, people familiar with the matter said.

The move, parts of which could be announced Thursday as part of Ford's second-quarter earnings report, is aimed at helping the company increase production of fuel-efficient cars in North America in response to this year's rise in gasoline prices, these people said.

Ford

Seeking to make more fuel-efficient cars in the U.S., Ford is said to have looked at bringing over European models, including the midsize Mondeo.

It is the most dramatic step so far by any of Detroit's Big Three auto makers in reaction to the serious bind the auto industry faces in the U.S. market. Hurt by the slumping economy, auto sales in recent months have fallen to lows not seen since the early 1990s. And with gas over $4 a gallon, consumers are also flocking to small cars and abandoning the trucks and sport-utility vehicles the Big Three rely on for most of their North American revenue.

Ford's effort to bring vehicles from Europe to the U.S. mirrors a similar move by Toyota Motor Corp. to produce more cars and fewer trucks in the U.S. It recently announced it will use a Mississippi plant now under construction to make the Prius hybrid instead of an SUV, as it had originally planned.

Earlier this week, General Motors Corp. said it will try to cut costs by $10 billion over the next 18 months, and it is trying to increase output at the car plants it has in the U.S. But it hasn't announced plans to convert truck plants to car production, or move production of some of the cars it makes overseas to U.S. factories.

GM already imports into the U.S. one compact that it assembles in Europe: the Saturn Astra. But analysts believe GM loses money on each Astra it sells in the U.S. because of the weak dollar, which makes goods produced in the 15-nation euro zone more expensive. By making its European models in U.S. plants, Ford can avoid the foreign-exchange impact and sell the vehicles at more attractive prices.

The move was pushed by Chief Executive Alan Mulally and met resistance from others in the company, people familiar with the matter said. Opponents questioned whether Ford can meet the timetable for the effort -- possibly as soon as 18 months -- and worried it could ultimately fail, as did previous efforts by Ford to sell European models in the U.S., these people said.

But Mr. Mulally, who spent his career at Boeing Co. before taking over the second-largest U.S. auto maker in 2006, decided to push ahead, they said.

Ford has looked at several European models to bring to the U.S, including the Mondeo midsize sedan and its European version of the Focus.

While Ford has been hurt by slumping U.S. sales, it continues to report success in Europe. This week, Ford said sales in its main European markets rose 2% in the year's first half, compared with a 14% drop in U.S. sales in the period.

Ford said in June that it had to delay the much-anticipated launch of its new F-150 pickup truck for two months, until November.

Ford is expected to report a substantial loss for the second quarter and lose money for all of 2008. It had net income of $100 million in the first quarter.

The company, which has lost $15.3 billion in 2006 and 2007, also said it no longer expects to break even in 2009 as once planned. In April, Mr. Mulally said the company expected to make money next year, and in May, after the drop in truck sales worsened, scaled that back to break-even.

Write to Matthew Dolan at matthew.dolan@wsj.com