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Ford Banking On Fiesta For Profit Party

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Subcompact addresses consumer demand for fuel efficiency.

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Ford (F) plans to meet consumer demand for fuel efficient cars with the Fiesta, a subcompact car.

The move is critical to Ford because it doesn't have a subcompact to compete with the Toyota (TM) Yaris, Honda (HMC) Fit and Nissan (NSANY) Versa.

The Fiesta is the first car to be built under CEO Alan Mulally's "One Ford" strategy that calls for the company's worldwide units to work together. Ford plans to offer the Fiesta in North America in 2010.

The Focus, now sold in North America, shares only about 20% of the Fiesta's parts. The North American version of the Fiesta will share about 90% of its parts with models made in Europe and Asia.

Using the same frame -- called a "platform" in the auto industry -- can cut development costs while allowing varying colors, interiors and options to meet the needs, tastes and budgets of regional customers.

The British version of the Fiesta, powered by a 1.6-liter, 4-cylinder turbo-diesel engine, is rated at the equivalent of US 51 mpg in the city and 74 mpg on the highway. The car comes with rear air deflectors and the suspension has been lowered.

Ford launched the Fiesta in 1976 and it's been a top seller in Europe. It's built in Cologne, Germany. The company plans to produce the European-designed Fiesta in Valencia, Spain in January. Production for the Asian market is scheduled to begin later this year in Nanjing, China and Rayong, Thailand.

In December, Ford plans to start converting its truck plant in Cuautitlan, Mexico to handle production of the Fiesta for the North American market.

US automakers bet low fuel prices would continue to make SUVs and trucks attractive to buyers - and lost. However, a barrel of oil recently fetched $115.28 on the New York Mercantile Exchange, down about 22% from the high of $147.27 on July 11th.

The emergence of India and China boosts worldwide demand and almost certainly means an end to cheap oil, or at least cheap enough oil to make monster vehicles attractive to buyers again. If so, Ford's Fiesta initiative looks smart.

The challenge: SUVs and trucks generate high profit margins while subcompacts don't. Look for Ford and other automakers to offer an array of options to gussy up its small cars and plump the bottom line.
No positions in stocks mentioned.
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