Ford Motor Co will eliminate its Mercury brand which has seen sales and investment plunge in recent years, closing out a vehicle lineup created in the 1930s by Edsel Ford, the automaker said on Wednesday.

Ford declined to reveal the cost of eliminating the Mercury brand, but said it expected to shift those resources to expanding its Lincoln luxury brand and did not plan any job cuts. Ford plans to cease Mercury production in the fourth quarter.

Mercury, established to serve as a bridge between the mass-market Ford brand and Lincoln, has seen sales dwindle from a peak in the late 1970s. Its U.S. market share has been falling for several years and is now less than 1 percent.

Auto industry analysts have suggested for years that Ford pull the plug on Mercury, but executives had affirmed plans to continue with the brand as recently as this year.

From a financial standpoint it was the only decision that Ford Motor Company could make and it is a difficult one, said Bob Tasca, chairman of the Lincoln Mercury dealer council.

The wind-down of Mercury, coupled with Ford's planned sale of its Volvo car unit to China's Geely <0175.HK>, reduces Ford to just two brands like Toyota Motor Corp <7203.T> and further distances the automaker from its past multibrand strategy.

Ford said the Mercury decision would not change its forecast to be solidly profitable in 2010. The Ford board of directors approved the Mercury decision on Wednesday.

Given our improving financial situation, it really allows the company to absorb the short-term cost of discontinuing Mercury, said Mark Fields, Ford's president of the Americas. We don't take this decision lightly.

Ford has been eliminating brands and overhauling its car lineup under Chief Executive Alan Mulally, who joined the automaker in 2006. Mulally has been a close follower of the Toyota manufacturing and brand strategy.

In the last three years, Ford has eliminated the members of its former premier auto group, selling off the Aston Martin, Jaguar and Land Rover brands and preparing the sale of Volvo.

Ford shares rose nearly 4 percent on Wednesday after the automaker reported a 22 percent rise in May U.S. sales overall with continued market share gains.

LIFTING LINCOLN

Mercury products have been nothing more than modestly restyled Fords for decades, and that's not how you build or maintain a brand, Edmunds.com senior analyst Karl Brauer said in a statement.

Eliminating Mercury will allow Ford to focus its efforts on the Ford brand and to accelerate efforts at Lincoln.

TrueCar.com analyst Jesse Toprak said it would take time and resources to make Lincoln a competitive luxury brand in the United States, perhaps three to five years for the first fruits and a decade to reinvent its image.

This goes back to how Toyota started operating a couple of decades ago, Toprak said. If you go to a Toyota Lexus dealership ... they are going to have an answer for every need. That is what Ford is trying to emulate and in fact do better.

Some 1,436 of Mercury's 1,712 U.S. dealers are paired with the Ford brand in some fashion. There are no stand-alone U.S. Mercury dealers but some of the 276 Lincoln Mercury dealers are likely to be consolidated in the process, Ford said.

I think a lot of them are going to make it and prosper and some of them are going to go out of business, Tasca said of Lincoln Mercury dealers.

National Automobile Dealers Association chairman Ed Tonkin said Mercury dealers deserved fair compensation.

Fields said the automaker's decision to close Mercury arose out of an annual business review conducted in the spring.

Many of Mercury's retail customers buy through discount programs offered to employees, retirees or friends and family, which translate into lower profits for the automaker. And since Mercury customers tend to be loyal, they would likely buy another brand in the Ford family.

The profile of the customers, the pricing, the margins is almost identical to Ford and at the same time, Mercury's brand awareness remains low, Fields said.

The Ford brand has gained 2 percentage points of U.S. market share so far in 2010, while Mercury as a brand has a market share of about 0.8 percentage point, Fields said.

Sales peaked at more than 621,000 vehicles in 1978, but Mercury sales have slumped in recent years. Mercury's U.S. sales were up 11.6 percent in 2010, through May at 41,680 vehicles, barely more than Lincoln.

By contrast, Ford brand sales were up 33.8 percent in 2010 through May at 704,721 vehicles.

Ford's product development already has been focused on Lincoln, which is introducing a significantly redesigned MKX crossover later this year. Six new or significantly redesigned Lincolns are planned to follow the MKX over four years.

The lineup includes plans for an all-new smaller vehicle, a first for the Lincoln brand, Ford product development chief Derrick Kuzak said.

It will not be a badge-engineered version of another Ford or outgoing Mercury product, Kuzak said.

(Additional reporting by Kevin Krolicki and Soyoung Kim; Editing by Richard Chang, Matthew Lewis and Sofina Mirza-Reid)

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