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Why the All-New 2019 Fiesta Could Boost Ford Motor Company's Profits

By John Rosevear – Nov 27, 2016 at 9:05AM

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Sales of small cars are way down in the U.S. But the all-new Fiesta could make a big difference to Ford's profit margins in Europe and South America.

Ford Motor Company (F 1.99%) said that it will reveal an all-new version of its small Fiesta next week. The Blue Oval will show off the new subcompact at an event in Cologne, Germany, this coming Tuesday, Nov. 29.

A new Fiesta might not seem like a big deal to Americans. Small cars are a tough sell in the U.S. right now. But the little Fiesta is a big deal in Europe, South America, and Asia -- and the new one is likely to be more profitable than the outgoing model. That makes it a big deal for Ford shareholders. Here's what we know. 

What we know about the new Fiesta

"The new Fiesta will be our best expression of Ford -- lovable fun, sporty to drive and with an unmatched personality true to the spirit of the iconic small car that has delighted generations of customers for the past 40 years," Ford Europe chief Jim Farley said.

The current Fiesta is the best-selling car in the U.K. and very popular throughout western Europe. The all-new Fiesta is expected to build on that success with a more upmarket feel. Image source: Ford Motor Company.

In other words, it won't be a radical departure from the current Fiesta. Spy photos published by British magazine Auto Express suggest that hatchback versions of the new Fiesta will have the same general shape as the current car, with a lower nose similar to that on the latest Focus and new horizontal taillights that make the car look wider. 

That's not a surprise, as the new Fiesta will be built on the same basic architecture that underpins the current car. But it will almost certainly be refined in subtle ways to improve the little car's ride and the general impression of quality. 

The biggest changes are said to be inside, where the new Fiesta interior will feature more premium materials to give the car more of an upmarket feel. Ford's latest SYNC 3 touchscreen system will almost certainly be offered as an option, as will the company's latest "smart" safety systems (lane departure warning, blind spot monitoring, and so forth). 

The new Fiesta's engines will probably include Ford's latest small EcoBoost powerplants. Ford's well-regarded turbocharged 1.0 liter three-cylinder EcoBoost engine might be the standard engine for the U.S. market. It's possible that a hybrid version of the new Fiesta is in the works, as part of Ford's larger global "electrification" effort, but it may not be launched until later. 

Why is Ford investing in the Fiesta when sales are down?

It's true that sales of the Fiesta in the United States have fallen off a cliff. Through October, U.S. Fiesta sales are down 26.6% from a year ago. With gas prices still hovering near $2 a gallon, buyers have overlooked the little Ford in favor of crossover SUVs and other, larger options.

But remember that Ford is a global company, and the Fiesta is a global product. It's critically important in markets where roads are narrow, gas is heavily taxed, or both. The Fiesta is Ford's biggest-selling model in Europe, by far, and it's a big seller in South America and many Asian markets, too.

It's built all over the world as well. Ford builds the Fiesta in factories in Germany, India, Mexico, Taiwan, Thailand, Venezuela, and Vietnam. As with the current model, new Fiestas for the U.S. market will come from Ford's factory in Cuautitlan, Mexico. 

How the new Fiesta could boost Ford's bottom line

Back in September, CEO Mark Fields said that Ford is planning to make its small models more profitable over the next few years. He pointed to five key elements that he said drive Ford's profitability in small vehicles, and said that Ford was working on ways to improve in each.

Image source: Ford Motor Company.

How will those five elements play into the all-new Fiesta? For starters, it's likely that there will be fewer options offered, for a much smaller total number of what Ford calls "orderable combinations." That reduces manufacturing complexity, which in turn reduces cost.

But that doesn't mean customers will suffer: One way to reduce complexity is to make more features standard. That's probably the approach that Ford will take with the new Fiesta: fewer trim lines, with more features included at each level, at somewhat higher prices that still offer competitive value (thanks to the somewhat more upscale feel of the new Fiesta). 

If Ford succeeds at giving the new Fiesta a more premium feel with plenty of appealing features, I suspect buyers won't mind the somewhat higher prices. The upshot will be that the all-new Fiesta delivers better profit margins for Ford. That could make a real improvement in Ford's profitability in Europe, and possibly in South America as well. 

When will we see the all-new Fiesta in the United States?

We don't yet know for sure. But based on what we know about Ford's product plan, it's likely that the all-new Fiesta will arrive at U.S. dealers sometime in 2018. We'll probably learn more at Ford's event on Tuesday.

John Rosevear owns shares of Ford. The Motley Fool owns shares of and recommends Ford. We Fools may not 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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