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Why Ford's Great Cars Aren't Selling Better

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It's just a data point, but it's an impressive one: A new survey from J.D. Power indicates that Ford (NYSE: F  ) has surpassed mighty Honda (NYSE: 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 (NYSE: 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 (NYSE: 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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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.

Read/Post Comments (6) | Recommend This Article (8)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On February 16, 2012, at 9:55 AM, prginww wrote:

    I think you've hit on Ford's problem with your second point. VW has taken the opposite approach with the Jetta, taking its materials and content down a notch and offering more room for less money, and its sales are picking up. This despite VW's reputation for poor reliability.

  • Report this Comment On February 16, 2012, at 5:07 PM, prginww wrote:

    Interesting analysis. Hadn't thought of that - good article!

  • Report this Comment On February 16, 2012, at 6:58 PM, prginww wrote:

    I'm a F stockholder. I want to buy a Ford. I just can't get past the dealer.

  • Report this Comment On February 16, 2012, at 8:14 PM, prginww wrote:

    Since you can still buy the $18K Focus, I don't see how it really hurts to have a $27K version - as long as it's a really good car and can show value for the money.

    The Focus Titanium (along with the Buick Verano, and the new Acura ILX) are never going to be sales leaders. But how many automakers are making money on C-segment cars? The domestics never made money on compacts. Mullaly famously told Ford managers they "better $&!*#! find a way to make money" on compacts soon after he was hired. Getting some of your buyers to load up ten grand in options is definitely a way to do it.

    I see this as Ford and GM trying to reproduce what they've done with light trucks since the early 90's. Remove the penalty box stigma, give it good styling and an interior and ride that surprise people. Marketing won't be easy, but it's not the worst product idea they've ever had.

  • Report this Comment On February 17, 2012, at 1:51 AM, prginww wrote:

    I'm a shareholder and have owned many Fords over the years. But Ford has to prove itself in small cars. My kids have bought Hondas for years with outstanding results. They have been forever cars. If Ford can match the longevity issue with their small cars they will win in the end. The turtle and the hare.

  • Report this Comment On February 21, 2012, at 1:24 PM, prginww wrote:

    You missed the fact that Ford's new AT has been a nightmare and the JD Power survey you site is for years before its release. Consumers Reports has documented the issue. I considered a Fiesta and then read about the problems of the AT and bought a KIA. Doing QC with early adopters will never earn my business.

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