Why Ford's Great Cars Aren't Selling Better
It's just a data point, but it's an impressive one: A new survey from J.D. Power indicates that Ford (NYS: F) has surpassed mighty Honda (NYS: HMC) in at least one important measure of vehicle reliability.
This survey measured "three-year dependability," meaning the number of problems that original owners of three-year-old 2009 model-year vehicles experienced in the past 12 months. Toyota's (NYS: TM) Lexus brand topped the charts, and other luxury brands like Mercedes-Benz, Porsche, Cadillac, and Ford's own Lincoln brand were among the high scorers.
Ford still trailed Toyota itself by a small margin. But the Blue Oval brand finished ahead of Honda -- as well as Nissan, Subaru, Volkswagen, and other import brands widely perceived as reliable.
So why aren't more consumers choosing Fords?
Reality versus perception
Part of the problem, as J.D. Power Vice President David Sargent points out, is that changes in perceptions trail changes in reality. Ford, like other Detroit brands, has a long history of less-than-stellar products to overcome -- despite mounting data suggesting that the company's quality is already on par with, or ahead of, key rivals.
"Negative quality perceptions are notoriously difficult to change, and it takes considerable time," Sargent said. He noted that Ford's not alone -- Buick, Cadillac, and Hyundai have, like Ford, posted strong results in this survey for the past four years. But perceptions among consumers, he says, haven't yet caught up.
This might be part of the reason Ford is struggling to get sales traction with its smaller offerings. By any measure, Ford's Fiesta and Fusion are excellent cars, at or near the top of their respective classes in terms of features, fit and finish, and on-road experience. But they're consistently outsold -- in some cases, way outsold -- by cars like the Honda Civic, despite review after review suggesting that the current Civic isn't nearly as nice as the Focus.
Is the problem just one of perceptions around quality? I think that's a big part of it -- lots of new-car shoppers still don't think to put products from Ford (or General Motors (NYS: GM) ) on their shopping lists.
But I also think there might be another issue in play -- and that one might be more troubling for shareholders.
Is this Ford strategy backfiring?
Ford has been lauded, here and elsewhere, for a strategy that was a key part of its vaunted "One Ford" global product plan -- namely, the decision to position its products at a premium level. In other words, Ford made its cars a little nicer -- with plusher interiors, better trim, and more features -- and priced them accordingly.
Ford's thinking was that this approach, coupled with its decision to offer elaborate options like its Sync infotainment system on every model, would attract consumers who were downsizing from larger vehicles like SUVs. It would also increase profits, the thinking went -- options and luxury features can be priced with much higher margins than the base price of the vehicle itself.
But while the strategy has clearly attracted buyers -- lots of Fiestas and Focuses go out the door with Sync, heated seats, and the like -- it may also be turning off more price-sensitive shoppers. Someone thinking of paying $18,000 or so for a nice new Civic might walk into a Ford showroom and be shocked by the price of a Focus, which in the fully loaded "Titanium" trim can run to more than $27,000.
That's a huge gap. Of course, you can get a base-model Focus for less than $18,000. But only the hybrid version of the Civic comes close to the price of a fully loaded Focus.
Ford has recently been offering modest incentives -- a $1,000 "cash back" deal -- on the Focus, perhaps to try to offset that sticker shock. Ford clearly needs to reduce inventories of the car, which have swelled recently.
That's too bad. The Focus, like other recent Fords, is an excellent car. And while it's too new to be included in J.D. Power's data, it's likely to turn out to be a dependable one, too. As a Ford shareholder (and a Focus owner), I hope that Ford finds ways to lure more potential buyers into its showrooms for test-drives -- without sending them running back out with sticker shock.
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At the time this article was published Fool contributor John Rosevear owns shares of Ford and General Motors. You can follow his auto-related musings on Twitter, where he goes by @jrosevear. The Motley Fool owns shares of Ford. Motley Fool newsletter services have recommended buying shares of Ford and General Motors, as well as 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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