Another Hit Product for Ford?
Apr 17th 2012 6:37PM
Updated Apr 17th 2012 6:38PM
Ford (NYS: F) has had an impressive string of, well, impressive new products over the past few years. The rethought Explorer has been a big seller, the refreshed F-series pickups have posted strong sales totals, and the 2012 Focus might be Detroit's best-ever compact car -- one that's doing well in markets around the world.
After last winter's auto shows, it seemed likely that Ford's success would continue -- at least to some extent. The new Fusion sedan, which will arrive at dealers this fall, has already won acclaim for its striking new styling -- along with its luxury-car-like interior and long list of impressive features. It seems set to be a success.
But the all-new Escape, successor to one of Ford's most popular SUVs ever, raised some concerns -- concerns that may, it turns out, have been unjustified.
The product of Ford's acclaimed turnaround plan
To understand the significance -- and the potential trouble -- with the new Escape, it's helpful to understand Ford's product strategy. One of the keys to Ford's turnaround has been its unified global product approach, part of an overall strategy called "One Ford."
In the old days, Ford designed similar but mechanically different vehicles for different markets, like the U.S. and Europe. The idea was that each model could be tailored for local tastes and preferences: For instance, Americans like their sedans to be cushy highway cruisers, where Europeans prefer taut handling -- or so went the conventional wisdom.
Given that it can take three years and cost a billion dollars or more to develop a new car or truck, this was a wasteful strategy. One of CEO Alan Mulally's first priorities after joining Ford in 2006 was to start the process of consolidating Ford's global product portfolio into a single lineup of vehicles.
By reducing the number of "platforms," or vehicle architectures, the thinking went, Ford could invest more in the development of each -- and update or replace them more frequently. That has already paid off with a slew of fresh products like the Focus and Explorer -- both of which have garnered critical acclaim and posted strong sales. And it has spawned imitation, as General Motors (NYS: GM) announced last year that it would pursue a similar global strategy.
Why the new Escape raised concerns
Ford's new Focus replaced two separate cars, both called Focus: a taut-handling European variant, and a budget-minded American one. It was a clear improvement on both cars, and markets around the world have been receptive.
The questions around the Escape arise from the fact that its replacement is a somewhat different vehicle from the outgoing model. The old Escape, which is still available and will be for a few more months, is a competitively priced small SUV with boxy old-school SUV styling. It's a simple, reliable, high-utility vehicle with homey appeal. It has been a strong seller for Ford, and its popularity has been increasing even as the model has aged.
The new vehicle, on the other hand, is different. It's more sharply styled, more in line with the European vehicle -- called the Ford Kuga -- that it's also slated to replace. Like the outgoing Kuga, the new Escape (which will wear the Kuga name overseas, including in China) is based on the same platform that underpins the Focus.
And like the Focus, it'll be more lavishly equipped -- and more expensive -- than its predecessor. Strong Escape sales totals in recent months have been helped along by discounts and incentives, which have made it one of the best bang-for-the-buck offerings in its segment. Will buyers be receptive to a higher-priced successor?
Early sales indicators are positive, but questions linger
Like the outgoing Escape, the new one will compete in the U.S. with vehicles like Toyota's (NYS: TM) RAV4 and the Honda (NYS: HMC) CR-V -- but it will do so with a somewhat different strategy. Rather than relying on value pricing and plain-American styling, it'll offer a more upscale interior, styling more in line with its competitors', advanced new fuel-efficient drivetrains, and options packages that can raise the sticker price to near $37,000, well above the current vehicle's humble levels.
That's the same strategy Ford followed with the Focus -- and although the Focus got a slow start, recent sales have been very strong. Will the new Escape be a similar hit? According to the Detroit Free Press, Ford already has about 8,000 pre-orders for the all-new Escape, a number that suggests that dealers are optimistic. And about half of those pre-orders are for the higher trim levels, the paper says.
And in truth, it may not matter if the new Escape doesn't quite match the sales numbers of the outgoing model. If Ford can sell the new Escape without heavy incentives, its profits per sale should be significantly higher than on the old model -- thanks to global economies of scale and those lavish options packages.
In that sense, the new Escape should be a winner for Ford.
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At the time this article was published Fool contributor John Rosevear owns shares of Ford and General Motors. Follow him on Twitter at @jrosevear. Motley Fool newsletter services have recommended buying shares of Ford and General Motors and have recommended creating a synthetic long position in Ford. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
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