To add to the problem, S is represented by multiple factions... Flyer, Hi-rail, Scale, P:64, Sn3. I don't think Lionel or MTH really understood the dynamics of the whole S market before they jumped in.
I don't think anybody expects Lionel or MTH to concentrate on P:64 or Sn3. American Models surely doesn't and the former SHS didn't. (Neither does River Raisin for that matter. PBL is pretty much the go-to company for Sn3.)
But, both AM and SHS figured out how to sell to the other three (remember, AM started out only selling scale-wheeled, DC operated products.)
However, it appears over time SHS became the true driving force for S and it's an opportunity that MTH has squandered. And if Lionel ever stops bumping into walls, they could also become a driving force for S.
Rusty
The point I was making is that S has very few modelers to start with and those are split between several groups. Niche within a niche... Then for whatever reason it seems that there are several differing opinions within those groups on any given question.
I agree that SHS had the formula correct. You need to design the products in a way that they will appeal to Flyer, HiRail, and Scale modelers alike. I suppose Lionel does have the traditional Flyer crowd, as the FlyerCheif BERK seems to be selling well at it's price point. While I'm happy for those folks that like it, it doesn't interest me as a Scale fan.
We've discussed this before, but I think one of Lionel's biggest missteps was the assumption that S was just like O. In O the bigger the model you make, the more you sell. Not necessarily so in S. You are talking about a scale that never had anything bigger than a 4-8-4 until Lionel came on the seen. They hit the market with 3 big articulated engines and then decided that there was no market and it was too costly to make more high end steam. I still believe that they simply chose the wrong prototypes. Jon Z. Told me 2 years ago that he had reduced the size of the electronics to the point that smaller models were now possible. That timing coincided with the management change unfortunately.
So back on topic.... I think that a small/mid sized plastic shelled steam engine could work. On the diesel side I think they need to look at something like the Sd40, Gp30/35/38/40, 44Tonner, 70tonner, S2, U23, C-series, etc... Basically something short enough to easily negotiate 20"r. That is assume of course that they want to invest in new tooling.
Perhaps they should call Ron at AM and see if he is interested in selling his tooling. Then they could spruce those up and add their electronics. Cheaper than making new. It's what Atlas and Lionel just did in O with Weaver... Just sayin...