S-Max USA? No way…

By Alex Ricciuti

07.19.2007

As promised in an earlier post whereupon I reviewed the Ford S-Max and asked why the North American consumer doesn’t get a choice like this at their local Ford dealer – or a Focus ST or a new Mondeo for that matter. Here is an answer that I hope can satisfy all those disaffected, turbo-charged enthusiasts who congregate at sites such as focusfanatics.com (Which I take to be Focus fans’ answer to vwvortex.com.)

So here’s why:

It’s simple. It is an issue of price/cost. It would just be too expensive for North American buyers to purchase a vehicle manufactured in Europe from a non-luxury brand like Ford. This is particularly the case right now with exchange rates being what they are. As of this writing the Euro is trading at about 1.37 to the US dollar. This is why VW is selling only about 400,000 cars in the US each year and losing money. They’re bleeding through the nose on the Passat and Golf/Rabbit built in Wolfsburg. The Jetta, made in Mexico, is probably mitigating their losses.

Base price in Germany for an S-Max is 27,000 Euros – which is about 37,000 US dollars at current exchange rates. On a Ford that size, sticker-shock in the US would have kicked in about 15,000 bucks before that.

Cost sensitivity is a big issue because corporations are very sensitive about losing billions of dollars. We see this in how the Detroit 3 respond to proposals to increase CAFE (fuel economy standards). They all oppose them because they believe it will add costs to the vehicles they produce.

They already build fuel-efficient cars in Europe. They already have the technology. Yes, they do. But they know that the US consumer is not willing to pay for this. Right now, the only advantage the Detroit 3 enjoy over their Asian competitors is the price advantage they offer – especially with their incentives. Their brand values aren’t what they would like them to be.

Ford of Europe is essentially a German carmaker. They are designed, engineered and built mostly at the Ford plant in Cologne, Germany (and other production facilities in Genk, Belgium and a drive-train plant in the UK, etc.).

And here’s where the Ford Focus example comes into play (Focus Fanatics, pay attention now).

Many car critics think the Focus ST is a great vehicle. I wasn’t complete impressed since I found it to be a drinker and the enormous power coming through the front-wheel drive seemed unbalanced. But it was still a pretty good competitor to the Golf GTI.

Ford Focus ST

The car sells for about 22,000 Euros, which would put you in the region of 30,000 US dollars. Now, assuming Ford even had the new Focus, which it does not, a customer walks into his local dealership in Florida or Oregon or Alberta or Nova Scotia and begins to wonder why he would have to pay more than double the base-price of a Focus for the souped-up ST version.

You see? They can’t just put a Focus ST in a North American showroom and be able to justify the price difference without an explanation that mangles the value of their brand.

Namely, that the Focus ST is a German car and is not the same as the North American Focus. That it’s a superior vehicle. As German as Mercedes or BMW. Sound good? Yes, it does. So that’s why you have to pay so much to have it. Which would lead the prospective buyer to state,”But it’s a Ford!” To which the salesman would reply,”Yes, but a European Ford.” To which the customer would say,”So you’re saying that this European Focus is a better car than that other Focus over there?” To which as an employee of a Ford dealer he would be forced to answer no. To which the customer would retort,”Then why do I have to pay twice as much money for the European one?” At this point the salesman’s ears would begin to spout smoke and he would break down to reveal himself to be a Detroit-engineered robot. See the contradiction?

Now, one can ask the obvious,”Why doesn’t Ford move production over to North America where costs are less and produce vehicles that consumers will like and that will up their brand value?”

This is what Mulally, Ford’s CEO, seems to be musing about.

It’s not such an easy path to reaping the profits of building great vehicles cheaply. If it were, Audi would have had a plant in North America long ago to be more competitive with BMW and Mercedes. PSA Group, Renault and FIAT would have already bought up old GM and Ford plants and re-entered the market to sell cars that do well in Europe.

The expertise, the suppliers, the infrastructure, materials, personnel, etc. is not something you can Fed-Ex across the Atlantic. You would need great amounts of money to make such investments which Ford and GM and those new owners of Chrysler really don’t have.

Also, they’d have to look at low-cost production in Canada or Mexico to escape the rampant escalation of health-care costs for workers in the US. They’d have to re-tool factories and negotiate new agreements with the unions to do so and so on and so on.

Fundamentally, the reason the S-Max is a great car is because of the expenses incurred in building it. You want cheap? It won’t be any good.

The two markets, Europe and North America, are very different too. North American consumers expect larger cars for much less money and aren’t as demanding as Europeans in terms of styling and performance from a volume brand.

But having explained that, again, the ultimate question still stands – why can’t the Detroit 3 build great, desirable cars in their domestic market? In a competitive economy there are no excuses; if your competitor makes a better product and can deliver more value for the price, which many of the Japanese automakers do, then you’re finished. You can explain it, as I just have above, but at the end of the day you lose.

Alex Ricciuti is a freelance writer and automotive journalist based in Zurich, Switzerland. He writes frequently for Automotive News Europe.

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Author: Brendan Moore

Brendan Moore is a Principal Consultant with Cedar Point Consulting , a management consulting practice based in the Washington, DC area. He also manages Autosavant Consulting, a separate practice within Cedar Point Consulting. where he advises businesses connected to the auto industry. Cedar Point Consulting can be found at http://www.cedarpointconsulting.com.

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8 Comments

  1. excellent analysis, although personally I would gladly pay more for a better car even if it was a ford.

  2. Nice article! I know the dead horse of the C1 Focus vs. the US Focus has been beaten numerous times already, but the thing I don’t get is how Ford can sell the Mazda3 with the same platform – to accolades, by the way – at around the same price as a Focus (at least it was the last time I checked about a year ago, excluding rebates on the Focus). Could some of the price difference also be attributed to different tax structures (i.e. a VAT in Europe built into the price, and not one in the US)?

    I do think that in the coming years, American consumers’ tastes will gradually shift more toward “premium” compact cars, but right now, for every 10 people that say, “I’d buy an S-Max if it was sold here,” if Ford actually did that, probably one of those 10 would actually follow through and buy it. Then, as has happened in the past, Ford and GM are screwed by the fickle American consumer who doesn’t know what he REALLY wants to buy.

  3. Nice article, good to see a reasoned analysis. The only theme more common in the Letters to the Editor at most car books than “You obviously were paid by BMW to let them win that comparo…” is “Why won’t those idiots bring the X from Europe/Japan/Australia…” The OEMs make plenty of mistakes but I don’t think anyone sits around in HQ thinking “This would really sell in other markets, but hey, screw it.” There are usually reasons for not crossing the ocean… maybe bad ones sometimes, but reasons!

  4. It’s always to difficult to move a brand up in public perception, but does Ford have a choice?

  5. I agree with civil servant, at some point Ford is going to have to start selling better cars, and since it’s a safe assumption that those better cars will cost more money than what they sell now, they may as well get used to the pain of trying to move their brand upmarket. Maybe they should start bringing in the Euro-Fords on a limited basis. At least they’ll have something good to sell.

  6. Ford is going down, nothing can save them, and if you buy one, you’ll be kicking yourself later.

  7. The other issue with bringing the Mondeo over is then you have quite a crowd with both the Fusion and Taurus so close in size (but not price)

  8. Can’t the next Focus be made in Mexico or Brazil?

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