Ford takes a Gamble on an Electric Focus

Ford announced this week that they would invest $550 million to retool the Michigan Truck Plant in Westland (MI) and Louisville (KY) to build an all electric Ford Focus. The North American version of the Focus is currently produced by Ford at the Wayne Stamping Assembly plant. While this is very encouraging news, since it will save and create jobs in Detroit, I have several concerns with Ford's strategy.

Firstly, Ford does not currently make any profit on the current Focus. This is generally true for all small cars produced by the big three and explains why the big three have never been keen on the small car market until the increase in oil prices forced them to rethink their strategy.

Ford is counting on economies of scale to reduce the cost of the Focus by simultaneously launching the Focus in the US, Asia and Europe. However, launching global programs can be problematical. Extra coordination is required for ensuring tooling is the same, materials are consistent and all suppliers must work in tandem to ensure a smooth launch. Changes will also require more coordination. This will add cost and complexity to the launch. Ford management is also negotiating with the UAW to further reduce labor costs and benefits. These negotiations also involve introducing flexible manufacturing and work practises so that several models can be assembled on the same line.

The typical north American consumer will also need to be enticed to buy an electric Focus since they regularly like to buy larger vehicles such as SUV's and pick-ups instead. This would have been an easier sell with gas at $4 per gallon rather $2 per gallon as it is today. Ford will need to add features to up-sell the Focus as they do in Europe. But, the European version of the Focus is more expensive than the north American version. Europeans are also more used to driving smaller vehicles since the price of gas is substantially higher (due to government taxation) and the cost of living is higher.

Ford also needs to prove to consumers that their Focus can compete on the same level as the compacts from Toyota and Honda. They will have to show that they can produce at an equivalent or higher quality standard than the transplants.

While Ford has my vote as the most likely of the Detroit big three to survive, I remain skeptical of their new car strategy. Bottom line US consumers will never seriously look at small cars unless the price of gas remains consistently high (as in Europe). Last year when the price of gas went to $4 per gallon, sales of the Focus increased. While I am against a new government tax on gas to promote energy conservation, we do need sustained government programs to promote the sale of small fuel efficient vehicles.