Ford's Hybrid SUV Pricing Strategy Is Just Plain Dumb (F)

Ford has no hope until its CEO grows a brain. That's harsh, but here's the story. As a consumer/potential customer, I don't give a damn about your company and your problems, I only care that you offer a competitive product - on both features and price.

The WSJ has a write up on Ford's Escape Hybrid SUV strategy. The hybrid version is $27K, the regular version is $17K, and "...the company has no plans to cut sticker prices...on hybrids." Say we want a payback in 7 years, so we need to save $1400/year ($10K/7) on gas, which at $3.00/gal is 476 gallons. If we're driving 15K miles per year, we need to do it with 476 fewer gallons, so we need a change of 31.5 mpg. That's the delta, not the actual mileage. So, if the normal vehicle gets 20 mpg the hybrid vehicle must get 51 mpg to pay back a $10K premium over 7 years at $3.00 gas. If gas is cheaper, or the desired payback shorter, the difference must be even larger. (BTW, the actual difference is something like 10 mpg, which is great, and makes it all the more tragic that they have killed it with bad pricing.)

In a word, that's crazy. Apparently Ford's customers know it, since they are not buying very well. But Ford's not going to lower the premium. Instead they are starting an advertising campaign, thus raising their fixed costs. On 17K Ford hybrids sold last year, at a $10K premium each, that's $170M. They had about $5B in automotive advertising expenses in 2005 (Annual Report, page FS-9). So, if they took 3.4% of their advertising budget, they could completely eliminate the hybrid SUV price premium. They would then own the marketplace.

Which do you think is a better use of their money - to try to convince me they are green but then rip me off, or offer me a cheap and superior product? Like I always say (with credits to Michael Phillips at Gods of Commerce), advertising is almost always a croc. Ford is doing an increased big push right now on their green potential, but they've been saying the same thing for the last 5 years, and it's been all sound-and-fury, signifying nothing, that entire time. Only now are they finally rolling out hybrids, and they are pricing them out of the market.

Ford's potential customers have the brains to figure this out. Unfortunately, their management doesn't.

F 1-yr chart: