The Ford Motor Company—the world’s oldest car manufacturer—is getting out of the car production business.
The company recently announced that it plans to stop production of all sedans, and instead focus on building trucks and SUVs.
Effectively, this means that Ford will no longer make models like the Taurus, Fusion, and Fiesta. Instead will only offer two cars stateside: The Mustang and the Focus Active crossover, which is due out next year.
Effectively, Ford is going all-in on SUVs and its massively popular F-Series pickup trucks.
Why is Ford shifting gears?
The short answer is that Ford’s cars are slow-selling and offer lower margins than the company’s other models. Car sales have been on the decline for years, and the company’s executive team is aiming at profitability—a goal more easily achieved by cutting fledgling models loose.
By 2020, almost 90 percent of the Ford portfolio in North America will be trucks, utilities and commercial vehicles.
“Given declining consumer demand and product profitability, the company will not invest in next generations of traditional Ford sedans for North America,” Ford’s quarterly earnings statement said.
American consumers are buying more trucks and SUVs, and Ford’s strategy reflects that. The company makes several SUVs, like the Escape, Explorer, Edge, and EcoSport.
It’s even reintroducing once-extinct models, like the Ranger and Bronco–all in an effort to sate Americans’ demand for bigger vehicles.
The raw data
Ford’s strategy change is an effort to keep pace with Americans’ changing tastes. People want bigger cars, and that’s what they’re buying. As a result, sales of smaller models have been on the decline.
For example, as of the beginning of April 2018, Ford has sold nearly 215,000 F-series pickups. That’s more than twice as many sales of the Toyota Camry (~91,000), the country’s best-selling car so far this year, according to industry data.
Of the top 20 best-selling vehicles in America, 14 are SUVs or pickups. The rest are cars, but all from foreign competitors, according to industry data.
|Top 5 best selling vehicles, April 2018|
|#1 Ford F - Series||87,011|
|#2 Chevrolet Silverado||52,547|
|#3 Nissan Rogue||42,151|
|#4 Dodge Ram||41,307|
|#5 Toyota Camry||35,264|
Foreign competition is another reason Ford is forfeiting certain segments of the market. The “Big Three” American automakers—Ford, GM, and Chrysler—are being dominated by companies like Honda and Toyota in the small vehicle space.
Ford isn’t alone in throwing up the white flag. GM also recently announced that it would stop making models like the Chevrolet Sonic and Impala, as sales have plunged in recent years. Fiat Chrysler is likewise making changes to its lineup. The Dodge Dart and Chrysler 200 sedans were cleaved from dealerships as it, too, tried to keep up with changing demand.
What’s spurring sales of SUVs and trucks?
In part, it’s due to economic conditions. The economy is in good shape, and gas prices have been relatively low since topping out at more than $4.00 per gallon, on average, in 2008.
Back then, at those prices, drivers were desperate for smaller, more efficient cars.
But now, with gas prices averaging around $2.50 per gallon, a dollar’s worth of gas will get you further. Gas prices are, however, rising.
What does it mean for you?
While your new car options are obviously limited when Ford enacts its new strategy, there are some economic side-effects that can reach beyond the auto industry.
Investors, on one hand, will likely benefit as Ford’s plan to slash spending and become more profitable fleshes out. But getting there will require hitting some bumps in the road, including plant closures and layoffs.