Ford’s Exit From Cars – Why It Matters – What Brands Will Benefit – What The Future Holds For Cars

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Ford just announced it is quitting on a volume of business larger than all of Volkswagen in America. Here’s why, and what the effects of that will be.

Ford announced this week that it will begin to formally phase out car models such as the Taurus, Fiesta, Focus, and C-MAX. Regardless of Ford’s plans, the marketplace has been phasing out these Ford models over time for a variety of reasons. The current sales volume of the models that Ford has indicated will eventually be retired tops 40,000 vehicles per month. In March, Volkswagen sold a total of 32,548 vehicles of all types in America. Mazda sold 33,302 vehicles in March. Ford is effectively killing off a volume of cars larger than many manufacturers have in America.

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If you think this is a plan that has suddenly popped into Ford’s leaders’ heads you are wrong. By proof, look at police vehicle sales. Ford successfully shifted police forces to larger full-size crossovers over the past decade. In March, Ford sold just 585 Police interceptor sedans. By contrast, the company sold 2,935 Police Interceptor Utility vehicles (customized Explorers). Back in 2016, Ford had already planned to move much of the production of its small cars out of the United States. That put the head of Ford at odds with a presidential candidate. The candidate won and Ford’s former leader is no longer employed in the automobile industry. Now that the dust has settled, it looks like Ford won’t be building small cars in America after all.

One pressing question, given that FCA has recently killed off its front-drive affordable compact and midsized cars, is “will GM follow suit?” The answer is “yes and no.” First the “no.” Mary Barra says that GM won’t move to end its cars because the investments are still paying off. However, on the “yes” side, GM will most definitely retire some car models. Mary Barra, GM’s CEO has specifically said that the Volt will be phased out and replaced by a battery-electric car (meaning one that is propelled only by electricity). Cadillac also has a car problem. For years the company poured money, people, and other resources into creating high-end, high performance, rear wheel drive cars. Every one of them is “under-performing.” The Cadillac car that now leads in sales is the company’s slowest, largest sedan. And it’s front-wheel drive. Over at Buick, car sales have been terrible. Both Cadillac and Buick are focused on crossovers going forward. Expect the car models to slowly drop one by one as their investments mature and the cost-benefit ratio tips negative.

Ford’s corporate average fuel economy (CAFE) average may be impacted by dropping sedans, but not as much as one might assume. The subcompact Fiesta makes up just 2% of Ford’s sales volume. The Focus and Fiesta have the same combined fuel economy (31 MPG), so getting rid of the smaller, lower-selling Fiesta is a no-brainer. As the chart above shows, a crossover with approximately the same interior volume as a car has nearly the same fuel economy. In the future, fuel prices are likely to rise. But will consumers find crossovers cost them more to fuel? Not much more. When equipped with the same drivetrain, the Escape has almost the same combined fuel economy as the Fusion. The new Ecosport crossover is larger inside than the Focus car and costs drivers just $100 more per year to fuel.

How Ford phasing out car sales will affect Ford is complicated. Do Ford shoppers put the shape of their vehicle ahead of brand loyalty? As time goes on, would Ford’s sedan shoppers have continued to migrate toward crossovers in ever-increasing numbers anyway? Ford clearly knows where to find the answers to these questions. It is written in every sales report from every brand. Buyers are migrating to crossovers and away from affordable sedans in every case. Except one.

The Toyota Camry is really the outlier. Its sales have defied the trends and have been going up. If any single brand might see an uptick in car sales as a result of Ford leaving the market, it could be Toyota. GM’s car sales have been going steadily down for years. It’s hard to say that the Chevy Malibu will see any help. Specialty affordable sedans may see some new consumers. Both Mazda and Nissan have exciting new midsize sedan models coming and might attract some sedan purists.

Honda, Toyota, Nissan, and a few other brands still see sedans and hatchback cars as a substantial part of their monthly sales. Don’t expect these brands to drop high-volume icons like the Corolla, Civic, and Altima any time soon. However, every new generation will start to morph a little more towards crossovers. Is the Honda Fit a car? Is the Nissan Leaf a car? They look almost identical to their makers’ crossovers and that trend will continue. Taller seating positions, squared-off hatch openings, higher roofs and other crossover elements will begin to take over. New models will almost all be “crossovers” as well. At least in name.  Kia’s Niro and Hyundai’s Kona exemplify how even vehicles that are basically cars will begin to have the look and vibe of a crossover and will be called such by their designers.

 

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John Goreham

John Goreham