The 65 mpg Ford the U.S.
Can't Have
Ford's Fiesta ECOnetic gets an astonishing 65 mpg, but the
carmaker can't afford to sell it in the U.S.
The ECOnetic will go on sale in Europe
in November
by David Kiley
This Issue
September 15, 2008
If ever there was a car made for the times, this would seem
to be it: a sporty subcompact that seats five, offers a navigation system, and
gets a whopping 65 miles to the gallon. Oh yes, and the car is made by Ford
Motor (F), known widely for lumbering gas hogs.
Ford's 2009 Fiesta ECOnetic goes on sale in November. But
here's the catch: Despite the car's potential to transform Ford's image and
help it compete with Toyota Motor (TM) and Honda Motor (HMC) in its home
market, the company will sell the little fuel sipper only in Europe. "We
know it's an awesome vehicle," says Ford America
President Mark Fields. "But there are business reasons why we can't sell
it in the U.S."
The main one: The Fiesta ECOnetic runs on diesel.
Automakers such as Volkswagen (VLKAY) and Mercedes-Benz
(DAI) have predicted for years that a technology called "clean
diesel" would overcome many Americans' antipathy to a fuel still often
thought of as the smelly stuff that powers tractor trailers. Diesel vehicles
now hitting the market with pollution-fighting technology are as clean or
cleaner than gasoline and at least 30% more fuel-efficient.
Yet while half of all cars sold in Europe last year ran on
diesel, the U.S.
market remains relatively unfriendly to the fuel. Taxes aimed at commercial trucks
mean diesel costs anywhere from 40 cents to $1 more per gallon than gasoline.
Add to this the success of the Toyota Prius, and you can see why only 3% of
cars in the U.S.
use diesel. "Americans see hybrids as the darling," says Global
Insight auto analyst Philip Gott, "and diesel as old-tech."
None of this is stopping European and Japanese automakers,
which are betting they can jump-start the U.S.
market with new diesel models. Mercedes-Benz by next year will have three cars
it markets as "BlueTec." Even Nissan (NSANY) and Honda, which long
opposed building diesel cars in Europe, plan to introduce them in the U.S.
in 2010. But Ford, whose Fiesta ECOnetic compares favorably with European
diesels, can't make a business case for bringing the car to the U.S.
TOO PRICEY TO IMPORT
First of all, the engines are built in Britain,
so labor costs are high. Plus the pound remains stronger than the greenback. At
prevailing exchange rates, the Fiesta ECOnetic would sell for about $25,700 in
the U.S. By
contrast, the Prius typically goes for about $24,000. A $1,300 tax deduction
available to buyers of new diesel cars could bring the price of the Fiesta to
around $24,400. But Ford doesn't believe it could charge enough to make money
on an imported ECOnetic.
Ford plans to make a gas-powered version of the Fiesta in Mexico
for the U.S. So
why not manufacture diesel engines there, too? Building a plant would cost at
least $350 million at a time when Ford has been burning through more than $1
billion a month in cash reserves. Besides, the automaker would have to produce
at least 350,000 engines a year to make such a venture profitable. "We
just don't think North and South America would buy that
many diesel cars," says Fields.
The question, of course, is whether the U.S.
ever will embrace diesel fuel and allow automakers to achieve sufficient scale
to make money on such vehicles. California
certified VW and Mercedes diesel cars earlier this year, after a four-year ban.
James N. Hall, of auto researcher 293 Analysts, says that bellwether state and
the Northeast remain "hostile to diesel." But the risk to Ford is
that the fuel takes off, and the carmaker finds itself playing catch-up—despite
having a serious diesel contender in its arsenal.
Kiley is a senior correspondent in BusinessWeek's Detroit
bureau.
http://www.businessweek.com/magazine/content/08_37/b4099060491065.htm?chan=rss_topStories_ssi_5
