Ford: Will Sell Hybrid Escape SUV Below Cost

DEARBORN, Mich., March 5, 2003; Justin Hyde writing for Reuters reported that Ford Motor Co. said on Wednesday it will sell a gasoline-electric hybrid version of the Ford Escape small sport utility vehicle at a loss while it tries to cut the costs of the hybrid system in half.

"We have to subsidize the price of the hybrid technology," said Prabhakar Patil, chief program engineer for the hybrid Escape, set to go on sale late this year. "We feel it's important to get in the market for this technology and get feedback from customers."

The hybrid Escape, the first such vehicle to hit the market from a Detroit automaker, will boast a combined fuel economy of 35 to 40 miles per gallon in city driving and 30 mpg in highway driving. The four-cylinder base model Escape averages 23 mpg in city and 28 mpg on the highway. Executives claim the hybrid Escape's performance will match that of the V6 model.

Hybrid vehicles use electric motors and battery packs to improve the fuel efficiency of internal combustion engines, adding power during acceleration and reclaiming energy during braking.

The rollout of the hybrid Escape comes even as the world's No. 2 automaker tries to cut total automotive costs by $500 million this year and keep its automotive unit headed toward break-even earnings, a goal many analysts call unrealistic.

Ford canceled plans for a hybrid version of its Explorer SUV, but Chairman and Chief Executive Bill Ford Jr. has said the automaker was committed to building more hybrid models.

Such systems have garnered much attention from automakers and governments for their potential to improve fuel economy at a reasonable cost. Toyota Motor Corp. has been the leader in the market so far and has set a target of selling 300,000 hybrid vehicles by 2005.

Domestic automakers claim that Toyota and Honda Motor Co. Ltd. sell their hybrid models at a loss in the United States and that the costs of the hybrid systems have limited their rollout.

Patil and other Ford executives working on the program declined to give estimates of the hybrid Escape's price, Ford's cost of building the system or the number of hybrid Escapes Ford plans to build. Other automakers have estimated the cost of a hybrid system at anywhere from $1,000 to $5,000 per vehicle.

Standard versions of the Escape on sale in the United States today have price tags ranging between $19,000 and $27,000.

"DO THE RIGHT THING"

Patil said several factors would determine how much Ford charges for the hybrid system. Those include whether customers could get federal tax credits for the vehicle, in what parts of the country Ford will sell the models and how much hybrid sales could improve Ford's corporate fuel economy averages.

The hybrid Escape may also get a boost from gasoline prices that now average nearly $2 per gallon around the United States. The fuel savings from current hybrid models such as the Toyota Prius and Honda Civic typically don't cover their extra cost, but Patil said hybrid buyers don't necessarily expect their investment to pay off.

"Most people are willing to pay a small premium to do the right thing," Patil said. "But it has to be a small premium."

Patil said Ford would make a profit on the system if it could halve its costs. Ford engineers said the cost of the system could drop quickly if volumes rise and more automakers rely on similar parts.

The first hybrid Escapes will be sold to fleet customers, while a version for retail buyers won't be available until the middle of next year. Ford executives say outside of a small "Hybrid" badge on the rear tailgate, there will be no exterior differences between a hybrid Escape and a regular model.