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Blurred Focus

How Ford mishandled its serviceable little car

In May, an otherwise dismal month for Detroit, Ford Motor Co. (F ) sold more than 20,000 Focus subcompacts, the fuel sipper's best showing in nine months. That's great news, right? Not really. Ford lost an estimated $4,000 to $5,000 on each Focus it sold.

What irony. Just when the subcompact market is heating up, Ford can't make money on a car acclaimed for its taut handling and decent 26/32-mpg fuel economy. The auto maker's Focus problem (pun intended) is an object lesson in how Ford continues to be hamstrung by high labor costs and tired product design. By choosing not to remake the Focus for the U.S. when it had the chance, Ford misread the road ahead. Now the auto maker is working overtime to bolster the Focus, albeit not until 2008, with a face-lift plus three new small cars.

When it hit the U.S. in 2000, the Focus was widely applauded. Car & Driver magazine named Ford's zippy subcompact to its influential "Ten Best" list four years running. But by 2003 the Focus had suffered more than 12 recalls. And when Ford redesigned it in 2004, the new Focus appeared only in Europe, where Dearborn felt it could fetch a decent price. Meanwhile, the U.S. version received just cosmetic upgrades.

Critics lavished praise on the European Focus, while noting snidely that Ford clearly thought Americans were too dumb to realize they were getting an old car. "From a viral marketing standpoint, that kills a brand and means you are forever selling on price," says marketing consultant Dennis Keene.

Making matters worse, the Focus represented Ford's sole bet on the small-car segment. Big mistake. Now that the auto maker is adding to its car lineup with the new Fusion sedan and forthcoming Edge crossover SUV, Ford finds itself short of loyal compact customers it can coax into trading up. Tom Libby, senior director of analysis at Power Information Network (MHP ), says having compelling cars priced under $20,000 is crucial because "those buyers overwhelmingly trade up within the same brand."

Ford has belatedly learned its lesson and is now playing catch-up. Come 2008, says product development chief Derrick Kuzak, Ford will have a "portfolio" of subcompacts in the U.S. as it does in Europe. Kuzak is coy on specifics, but people with knowledge of Ford's plans say the lineup will include a five-door sedan and a small SUV the company may call the Bronco. A third subcompact is being debated, too. Says Kuzak: "This market is being driven by fuel economy and demographics," namely the 57 million Gen Yers for whom Ford has little beyond the Focus and Mustang to offer. What will the new cars look like? "Sleek and sporty," Kuzak says, "but not quirky."

Ford insiders say the new trio will be built in Mexico, where labor costs are lower and where the auto maker is already building the Fusion, Lincoln Zephyr, and Mercury Milan. The new cars will arrive five years after Toyota Motor Corp. (TM ) launched the Scion brand to go after the same market and three years after Chrysler (DCX ) knocked out three new models to beat up on the Focus. Ford is hoping late is better than never.

By David Kiley

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