(For more on the 2010 Detroit auto show, see {SHOW <GO>}.)
By Keith Naughton
Jan. 11 (Bloomberg) -- Ford Motor Co. says it improved the redesigned Focus compact with safety and fuel-saving features like those found on Porsche SE sports coupes. Now the automaker must persuade consumers to pay more for a small car.
The Focus, which is being introduced today at the Detroit auto show, is a pillar of Chief Executive Officer Alan Mulally’s bet that U.S. buyers will embrace small cars equipped with the amenities more typically found in larger models such as sport- utility vehicles.
Expanding the small-car lineup means Ford will have to charge higher prices to earn a return from the kinds of autos that have historically been unprofitable, said John Wolkonowicz, an analyst at IHS Global Insight in Lexington, Massachusetts.
“Ford will have to condition the American car buyer into thinking smaller is better, or this business model will not work,” Wolkonowicz said. “It’s a huge challenge.”
The Focus will lose its status as Ford’s smallest offering when the Fiesta subcompact goes on sale in the U.S. this year. That shift will force Dearborn, Michigan-based Ford to charge more for the Focus once the new version reaches dealers in 2011, Wolkonowicz said.
Prices for the Focus now start at $16,985, according to Ford. The Fiesta, which includes seven air bags, will sell from $13,995 to $20,375.
On Display
The Focus will be among the first models unveiled at the North American International Auto Show’s media days, which open today and end tomorrow. A variety of small cars and electric vehicles will be on display as automakers shift away from light trucks after a decade in which crude oil prices more than tripled.
Federal pressure also is shaping the industry’s efforts to offer more small autos, with President Barack Obama’s 2009 announcement of standards for greenhouse-gas emissions and the first boost in fuel-economy standards in decades.
Toyota Motor Corp. is revealing its next hybrid-only model in Detroit, and General Motors Co. will unveil an Aveo RS show car. Chrysler Group LLC, part owned by Fiat SpA, plans to display a battery-powered concept version of the subcompact 500.
“The world is moving to expecting and wanting the highest- quality in every vehicle size, whether it’s small, medium or large,” Mulally, 64, told reporters last month. “And people are going to pay for the value that they perceive in each one of these vehicles.”
Mulally’s Record
Since joining Ford from Boeing Co. in 2006, Mulally has sought to rebuild the company’s namesake brand and design models for sale worldwide. He found buyers for Aston Martin, Jaguar and Land Rover, and is talks to sell Volvo to China’s Zhejiang Geely Holding Group Co.
Mulally also cut the North American workforce in half, shut factories and retooled SUV plants to make small cars like the Focus. Ford posted profits in last year’s second and third quarters, and avoided the federal bailouts that included trips through bankruptcy for GM and Chrysler.
Investors responded by driving up the shares more than fourfold. Ford rose 3 cents to $11.69 on Jan. 8 in New York Stock Exchange composite trading, the highest closing price since March 2005.
New Test
The arrival of the new Fiesta this year and the Focus in 2011 means that Mulally’s small-car strategy hasn’t been tested by a U.S. market long resistant to those vehicles.
U.S. small-car sales fell 20 percent in 2009, compared with a 19 percent total drop for the SUV and sport-wagon categories, according to industry researcher Autodata Corp. Passenger cars made up 38 percent of Ford’s sales, as gasoline slid to an average of $2.35 a gallon at U.S. pumps from $3.25 in 2008.
“The risk for Ford is, where do fuel prices go and will that marginalize the small-car segment?” said Michael Robinet, a CSM Worldwide analyst in Northville, Michigan.
Building small cars for global sales cuts costs and allows Ford to offer more features, said Derrick Kuzak, the product development chief. By 2012, Ford is targeting worldwide sales of 2 million for the Focus and its global variants, which will share more than 80 percent of the same parts, he said.
Kuzak said Ford also expects the Focus to produce more revenue. Ford offered a $2,574 discount on the current version last month, up 15 percent from a year earlier, according to researcher Edmunds.com. Ford said Focus sales fell 18 percent in 2009, worse than the automaker’s 15 percent decline.
Improving Profit
“To try to improve profitability, we’re working on both the cost and revenue side,” Kuzak said. “The cost comes from global scale. The revenue comes from leading in design, fuel economy, safety and technology.”
The Focus will have a 4-cylinder engine that uses 10 percent less fuel and increases horsepower 20 percent, Ford said, without giving details on the expected mileage. The steering wheel will have iPod-style thumb controls to run the audio, phone, climate and navigation systems. An electric model is planned, too.
Kuzak said Ford’s experience with the redesigned Taurus and Fusion last year supports the idea that adding features can boost revenue. Ford said buyers chose more options on those models and others, helping generate $2,700 more in revenue from each vehicle sold in North American in the third quarter.
“We expect the same thing to happen with our smaller cars,” Kuzak said.
What Next?
Mulally’s small-car initiative thrusts Ford into a more- competitive vehicle category. There were 29 compacts and subcompacts on sale in the U.S. last year, and that will grow to 45 models by 2014, according to Global Insight.
“We aren’t necessarily seeing consumer demand for small cars really growing as aggressively as new-model introductions,” said Rebecca Lindland, a Global Insight analyst. “There is a direct correlation between gas prices and sales of small cars. And once gas prices stabilize, American consumers go right back to buying larger vehicles.”
With the additional features, the Focus may be able to earn a profit where previous small cars have failed, Lindland said.
“It’s fraught with challenges, but they’ve made a terrific looking vehicle and chocked it full of technology,” she said. “If they can price it right, that’s a compelling recipe.”
--Editors: Ed Dufner, John Lear
To contact the reporter on this story: Keith Naughton in Southfield, Michigan, at +1-248-827-2941 or Knaughton3@bloomberg.net
To contact the editor responsible for this story: Jamie Butters at +1-248-827-2944 or jbutters@bloomberg.net
-0- Jan/11/2010 05:01 GMT
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