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Ford’s Slow Start Left Sirius Smelling XM’s Fumes

By | October 25, 2004

      Ford Motor Co. [F] was suffering through hefty losses and restructuring woes when rival General Motors [GM] initially invested in Washington-based XM Satellite Radio [XMSR] and pledged to fund a major marketing blitz. Progressive GM’s early commitment to satellite radio is a key reason why XM now has more than 2.5 million subscribers. Ford’s long-overdue decision last week to begin offering factory-installation of Sirius Satellite Radio [SIRI] units in the 2006 model year is one of the big reasons why the New York-based competitor to XM only has a bit more than 700,000 subscribers.

      The rationale for Ford was not to jump into the satellite radio arena prematurely. In one sense, an objective observer could understand the caution.

      Ford historically has taken its share of financial hits by investing in new technology. Does anybody remember the Edsel? It was a radically designed car built nearly 50 years ago that was too unconventional to entice consumers in sufficient numbers for Ford to continue the model beyond its third year of production. The Edsel was a short-lived, ill- fated attempt to be bold during the recession of the late ’50s.

      A more recent example of not gaining a payoff from investing in new technology occurred when Ford attempted to develop its own competing system to GM’s OnStar satellite-based vehicle navigation division. Ford founded Wingcast, a joint venture launched with Qualcomm [QCOM] on July 31, 2000. The venture was shut down during 2002 after sustaining two years of losses during its development stage. Ford owned 85 percent of Wingcast, which missed an original goal of putting the navigation service into Ford cars by late 2001. Clearly, Ford’s pursuit of new technology sometimes has resembled the legendary tale of the Lorelei, whose singing enticed sailors to shipwreck.

      With such a history, perhaps one cannot blame Ford for waiting.

      “We wanted to react to a pull, not make it a push,” said Will Boddie, Ford’s vice president of North America engineering, during an exclusive phone interview with me last week. “Our experience with pushing technology is that it is risky. We fundamentally are a mass-market company. We react to a pull, as opposed to trying to push technology. There are many examples of getting ahead of the curve.”

      Ford wanted no part of satellite radio’s pioneering days and the losses that would come with it. However, XM appears on track to become the next great satellite industry success story. It is emerging as the radio equivalent of U.S. satellite TV giant DirecTV [DTV], another venture that GM helped to launch. XM CEO Hugh Panero likes describing his company as the HBO of satellite radio. XM is the clear frontrunner to Sirius. Ford’s delay in factory-installing the technology is a key reason for the vast disparity in subscribers between the two competing satellite radio duopolists.

      Ford and its Mercury and Lincoln brands until now have offered Sirius as a dealer-installed option on just nine models. Sirius is currently available on the Ford Explorer, Sport Trac, Expedition and Thunderbird; the Mercury Mountaineer; and the Lincoln LS, Aviator, Navigator and Town Car as a dealer-installed option. The pace will pick up this fall as four additional models – Ford Escape, Crown Victoria, Mercury Grand Marquis and the all-new Mercury Mariner – offer Sirius as a dealer-installed option.

      Satellite radio is something Ford vehicle buyers want, Boddie said. Market surveys indicate strong demand. But XM and Sirius executives both understand that factory installation is by far the best and quickest way for a new vehicle buyer to obtain satellite radio when buying a new vehicle.

      With XM tied to GM and Sirius committed exclusively to Ford and Chrysler [DCX], any reluctance on the part of the automakers to give their full and unfettered support is a setback for its satellite radio partner.

      Now that Ford is committed, Boddie said his company expects a high “take rate” for the service.

      “Satellite radio is a great alternative in places where reception of terrestrial radio is not very good,” said Boddie, sounding more like affirmed believer than a fledgling follower. “The content is the real selling point.”

      Ford has been involved in planning its factory-installation initiative for quite a while. Sirius’ signing of shock jock Howard Stern in a five-year, $500 million deal following a seven-year, $220 million pact to offer virtually every National Football League game exclusively coast-to-coast, did not factor into Ford’s timing, Boddie said.

      With Ford averaging sales of 3 million U.S. vehicles a year, it likely will give Sirius a big boost in subscriber sales in the coming years.

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