Ford Bails On Sedans
During its Q1 earnings call on April 26, Ford announced it will no longer build a traditional sedan for the North American market. The only passenger car in its lineup will be the Mustang. Fiesta? Focus? Fusion? Taurus? All gone. There will still be a vehicle with a Focus nameplate on the back, but it will be a tall 5-door hatchback/crossover sort of thing called the Focus Active.
“We will have a very diverse passenger car business,” Jim Farley, Ford’s president of global markets, said Wednesday. “It just won’t be traditional silhouetted sedans that tend to be commoditized.” I looked up “commoditized” in my OED but couldn’t find it. I think it means cars that get wholesaled to rental car companies. “We’re not going to invest where it doesn’t make sense,” added CFO Bob Shanks.
Well, yeah. That makes sense. They teach you in B school that you can’t buy apples for 25 cents apiece, sell them 5 for a dollar, and make up the loss by selling in volume. Americans are lovin’ SUVs, crossovers, and pickups. Gotta give people what they want, right? “Just trying to keep my customers satisfied,” as Simon & Garfunkel once said. Or sang, actually.
FCA Out, GM Trims Sedan Lineup
FCA made the decision last year to shut down sedan production and concentrate on Jeeps and Dodge Ram pickup trucks. The 2019 Ram will grow by 4 inches. Three of those inches will be added to the back seat area, making it more like a sedan, assuming you like sedans that sit about 15″ off the ground.
GM is also trimming its sedan lineup, although not as radically as Ford. Production of the Chevy Cruze is being scaled back and the slow selling Sonic will be axed by the end of this year. Buick is having success with its SUV offerings, but Cadillac, which has been slow to access the crossover market, is struggling. CEO Johan de Nysschen got the boot last week for not predicting the future as well as his bosses had hoped, according to The Drive.
What Does It All Mean?
US car companies have been whining about the fact that they can’t manufacture small, efficient sedans and sell them for a profit since 1958. That attitude opened the door for the Japanese, the Germans, and the South Koreans to waltz in and do what they do best — manufacture small, efficient sedans and sell them at a profit. Now China is waiting in the wings, licking its chops.
Among all the weeping, wailing, and gnashing of teeth in Detroit, Toyota announced this week that it is investing $170 million to update its Corolla assembly line in Mississippi. Once complete, it will add 400 new workers at the factory. How can Ford, FCA, and GM be running away from making sedans while Toyota is ramping up production of similar cars? Does that make any sense?
It does if you follow the money. Michael Martinez, who follows Ford for Automotive News, points out that despite the fact that Ford will still have smaller cars to offer — the Focus Active and EcoSport among them — they will cost about 20% more than the models they replace.
A friend of mine says, “People see what they are told to see.” Think back to the last time you watched television. What commercials from car companies did you see? If you saw an ad by Ford, GM, or Dodge, it’s likely it was for a pickup truck. It is common knowledge but still poorly understood by the public that pickup trucks and the SUVs derived from them (the original Ford Explorer was a Ranger pickup with a passenger car body) are huge moneymakers for the companies that manufacture them.
The companies say they are just giving people what they want, but people see what they are told to see. The Big Three haven’t spent two cents advertising their sedans in the past two decades. (That’s a bit of an exaggeration , but not by much.) People see what they are told to see just as sure as night follows day. Quid pro quo. Or maybe “self-fulfilling prophesy” is the proper phrase.
Martinez makes another cogent observation. A decade ago, when the big guys were getting hammered by the last Great Recession, Ford got $5.9 billion in loans backed by the federal government to help it build high-mileage cars. Did the taxpayers get their money’s worth?
The Great Gas Mileage Hoax
We are all aware of how the car companies have been sucking up to the Trump administration to get the fuel economy rules put in place by the Obama administration on its way out the door tossed overboard. Once again, Martinez offers an insight.
There isn’t much difference between the mpg numbers for crossovers and sedans these days. The Ford Escape gets just 1 mpg less than the Fusion sedan and the Explorer actually has slightly better fuel economy than the Taurus. Many light duty pickup trucks today can claim they get 30 mpg or nearly so. Yeah, that may be downhill with a tailwind and, yeah, they really get about 20 mpg driving back and forth to work or picking up little Lucinda after ballet practice, but their owners can sit behind the wheel and pretend they are getting 30 mpg. People see what they are told to see.
You have to dig into the mpg rules to understand what is going on beneath the surface. Those rules are not uniform for all vehicles. Those with larger footprints enjoy lower targets. Small, economical cars get held to the highest standard. Fuel economy costs money. Want to save money at the production level? Build larger vehicles. Easy peasy. People see what they are told to see.
So now how does all the money the Big Three spend advertising large pickups with names like Gargantua or Ginormous sound to you? Like self-serving shilling meant to maximize profits, perhaps? Sharp-eyed readers will notice that every battery electric, hybrid, or plug-in hybrid Ford currently offers will be swept away by the cuts in sedan production. Billions of dollars the company might have spent on efficient family cars will now be invested in making trucks instead — trucks that qualify for the lowest tier of the fuel economy regulations.
Another friend of mine wonders if this is not yet another sign of the division of America into those who can afford to buy new cars and those who cannot. As the rich get richer, more and more people are getting left behind. The head of Dodge bragged this week he wanted the new Ram to top out at $70,000 and was disappointed when it missed the target by a few hundred dollars.
Michael Martinez tells of Ford dealers who confess in private they worry about not having cars in their inventory that are affordable for many of their traditional customers. Such cars are important for getting shoppers in the door, where hopefully they will be mesmerized by more expensive models with higher profit margins.
There are other forces at work here as well. Ride-hailing, car-sharing, autonomous cars — all are conspiring to fundamentally change the way business is done in the world of automobiles. Some think those services could generate billions — even trillions — of dollars in income in coming years. Maybe the Big Three are running away from sedans and running toward the vehicles they think will be in demand in the future, cars with more spacious interiors that can move people from Point A to Point B in comfort and style.
Certainly, sport utility vehicles and crossovers are now the rage everywhere in the world. At the Beijing auto show this week, they were featured on every stand. As China goes — with its 30 million new cars a year — so goes the rest of the world. Most Americans are probably unaware of the influence China is having on the global auto industry, but is no longer the tail that wags the dog. It is the dog, and a mighty big one at that.
Someone I hold in the highest regard told me at breakfast this morning it looks like the Detroit companies are moving their operations to China lock, stock, and barrel, and leaving mere shells of themselves behind. There may be great wisdom in that observation.
Australia has seen its domestic auto industry collapse. Today, it is little more than a dumping ground for vehicles that don’t meet regulations in other countries. By pushing to roll back regulations they find inconvenient, US manufacturers may be setting America up for a similar fate.
Another factor to consider is what will happen if gas prices skyrocket again. Suddenly, Americans will be flocking to dealers in search of fuel efficient cars and American car companies will have nothing to offer them. But others surely will. It’s not like such things haven’t happened before, but people have very short memories. We see what we are told to see.
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