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Toyota Motor Corporation (ADR) (TM), General Motors Company (GM): Ford Motor Company (F)’s C-MAX Slip-up Will Cost Millions

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

Last week Ford Motor Company (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 Motor Company (NYSE:F) millions and could hurt its squeaky-clean brand image.

Ford Motor Company (NYSE:F)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 Motor Corporation (ADR) (NYSE:TM) separately tested all of its hybrid models for a more accurate result.

How much?
Ford Motor Company (NYSE:F) 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 Motor Company (NYSE:F)’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 Motor Company (NYSE:F)’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 Company (NYSE:GM) 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 Motor Company (NYSE:F) 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 article Ford’s C-MAX Slip-up Will Cost Millions originally appeared on and is written by Daniel Miller.

Fool contributor Daniel Miller owns shares of Ford and General Motors. The Motley Fool recommends Ford and General Motors. The Motley Fool owns shares of Ford.

Copyright © 1995 – 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.

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