Although I personally *loathe* the idea of colourizing Makefile output….
Are you using the full pathname of the command? IE: /bin/echo? If not, you may be getting a shell built-in, and if you're using /bin/sh (and it's not a link to bash), it won't know anything about extended escape sequences.
Though I don't know if it will fix your problem here (or even work in this context), you might try changing \e to \x1b or \033. I have had to change this in a lot of poorly written code where the non standard \e is used.
which echo shows /bin/echo as the echo I'm using. I typed ls -l bin/sh and got the /bin/sh -> dash kline mentioned. I did sharmair's method with the \033 instead of \e and it worked. the \x1b didn't work. Thanks for the help guys, I truly appreciate it.