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Ford's C-MAX Slip-up Will Cost Millions

Ford's C-MAX, Photo Credit: Ford Motor company.

Last week Ford (NYSE: F  ) announced that it would lower the C-MAX's combined city and highway miles per gallon, or mpg, capacity down from 47 to 43 mpg. The C-MAX was never even tested separately; its mpg was entirely based on another vehicle's – which was technically allowed by EPA rules. You can call it a loophole or just plain lazy – either way this will cost Ford millions and could hurt its squeaky-clean brand image.

What happened?
The rules say that companies can test the highest volume car in the family – based off transmission, engine, and weight class. The EPA claims that it yields an accurate result for standard vehicles, but with more advanced cars like hybrids it hasn't been as accurate. Since the Fusion hybrid has the highest volume in the family, it was tested and its fuel capacity result was gifted to the C-MAX hybrid. To make things worse for the Blue Oval, Toyota (NYSE: TM  ) separately tested all of its hybrid models for a more accurate result.

How much?
Ford declined to estimate how much this would cost the company, but it's not hard to calculate a quick figure. C-MAX buyers will get a goodwill payment of $550 and lessees will get $325. The vehicle debuted last September and has sold just over 36,000 vehicles. Do a little quick math and the worst-case scenario brings Ford's total "goodwill" payments to about $19.8 million.

That nearly $20 million is a drop in the bucket for a company that brought in billions of pre-tax profits last quarter alone. However, this could have a negative impact on Ford's previously untarnished brand image.

Graph by author, information via R.L. Polk & Co.

As you can see, Ford commands the top position in brand loyalty – which rates the amount of customers that return to the brand – but small things like this can have a significant impact. So far though, it doesn't look to put a dent in the goodwill that Ford's brand has built since it trudged through the recession without a taxpayer-funded bailout – unlike its crosstown rivals General Motors and Chrysler.

"Consumers who we sell the C-Max to love it. We're not worried it will affect sales," Randy Norton, a general manager of a Ford store, told Automotive News. "I think they handled it very well. It was a voluntary action on their part, taking care of customers." Automotive News notes that that reaction was fairly typical among dealers.

Bottom line
Ford restating its fuel capacity on the C-MAX won't cost the company enough money for investors to worry. Nor will it damage the brand image that has been incredibly strong since the recession. Ford is producing smaller, fuel-efficient rides that are impressing new consumers when they walk in the showroom – and this development likely won't reverse that trend. Ford remains a very sound investment opportunity as the automotive market continues its rebound.

The C-MAX fuel efficiency development won't crush Ford, but do you know the major developments that could? The secrets to success that could make investors like you rich? The answers are simpler than you think, and The Motley Fool is sharing them in a free report entitled, "5 Secrets to Ford's Future". Inside we outline critical information every Ford investor must know, so click here now for your free report.

Read/Post Comments (5) | Recommend This Article (2)

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 August 19, 2013, at 7:24 PM, RDHord wrote:

    This is totally ridiculous. Ford did not make the mistake by themselves, sounds like the EPA was as much as fault as Ford. The EPA should have to pay some of the mistake just like Ford. THIS IS KILLING MY STOCK!!!

  • Report this Comment On August 20, 2013, at 8:36 AM, Soakee wrote:

    This was NOT Ford's "slip up". Ford used the EPA's own rules (or a loophole therein) for the C-Max's mileage ratings. I am blaming the EPA for this debacle.

  • Report this Comment On August 20, 2013, at 8:52 AM, TMFTwoCoins wrote:

    I'm a Ford guy, but using a loophole to inflate MPG when selling vehicles to consumers isn't a great marketing plan, in my opinion.

  • Report this Comment On August 20, 2013, at 9:16 AM, CluckChicken wrote:

    The MPG ratings are all a junk stats anyway and this is just another reason why you should not hold much faith in them.

  • Report this Comment On September 16, 2013, at 7:37 AM, lumike wrote:

    might want to check out this link

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