Ford shifts $7 billion in investment capital from sedan segment to SUV and truck businesses, including developing hybrid, electric, and self-drive models.
Automobile giant Ford announced that it is scaling back on manufacturing and selling passenger cars — except for Mustangs and a new version of the Ford Focus, called the Ford Focus Active. The company is redirecting $7 billion in investment capital to its more popular pickup truck, SUV, and crossover models. Ford estimates that by 2020, almost 90% of its North American portfolio will be comprised of trucks and utility and commercial vehicles.
Bye-bye cars
Ford’s decision to divert investments outside of the passenger car segment is due to changes in market conditions, particularly as car sales have dropped over the past two years. According to Ford, the market continues to strongly favor well-equipped SUVs and trucks and the automaker is capitalizing on this generational shift. Sales of “traditional” passenger cars have been plummeting worldwide in the wake of the abrupt rise in popularity of SUVs.
The Washington Post reported that in 2017, compared to 2016, sales have declined for a number of once-popular passenger vehicles. For example, Ford Fusion sales decreased by 21% and Nissan Altima sales decreased by 17%. Even the Toyota Corolla and the Honda Accord, two of the world’s best selling cars, saw sales reduced by 14% and more than 6%, respectively. These reductions in sales are due to recent changes in consumer behavior towards buying cars. In the early 2000s, a combination of rising gas prices and economic anxiety led the market to opt for smaller, more efficient vehicles. However, very recently, stable oil prices, and the evolving tastes of the baby boomer and millennial generations, have gravitated the market towards SUVs and crossovers for their versatility.
SUVs vs. cars
Car-buying consumers feel crossovers and SUVs are safer, cleaner, and more fuel-efficient than passenger cars, which include sedans, hatchbacks, and wagons. In the last decade, many consumers resisted buying SUVs due to their low gas mileage. However, engineering improvements have produced a new generation of fuel-efficient engines that have made purchasing an SUV a sound financial choice. Although SUVs and crossovers sell at higher prices than cars, they also offer more space, higher ground clearance, and the ability to accommodate families better than conventional cars. According to Automotive News, while SUVs may demand dramatically higher prices than passenger cars of similar sizes, they cost, more or less, the same for the automakers to build.
Embracing the change
Ford, named as Interbrand’s Best Global Green Brand, is working to meet stricter fuel economy standards. The company will invest in developing new engine technologies, including adding hybrid-electric powertrains to high-volume and profitable vehicles, like the F-150 and Mustang. For example, the Mustang, a two-seater car, is currently the world’s best-selling sports coupe for the third straight year in a row (2016-2018). Of the nearly 126,000 Mustangs registered globally, Ford reported around 82,000 of these were registered in the US, where the car is manufactured, meaning just over one-third of all Mustang registrations are in export markets.
As of 2018, the F-150 series’ new 3.0L turbo diesel truck is the most fuel-efficient full-size pickup in the United States. According to the company’s April 2018 sales, the F-Series trucks have posted 12 consecutive months of year-over-year gains.
What’s next?
Moving forward, Ford has plans to design vehicles different than what they currently offer. The company’s battery electric vehicle (BEV) Mach 1 rollout starts in 2020 with a performance utility vehicle, and 16 other BEVs will follow by 2022. This vehicle will be the first of 6 electric vehicles (EVs) Ford plans on producing by 2022, as part of the company’s plan to invest $11 billion into EVs. Ford expects to integrate this technology in a new EV SUV. The automaker estimates its SUVs sales alone will grow 71% by 2020.
In addition, Ford and Domino’s have launched an industry-first collaboration to understand the application of self-driving vehicles in food delivery. With a plan to begin production of autonomous vehicles in 2021, Ford is taking steps towards building a business model to deploy self-driving vehicle technology for Domino’s pizza delivery services.
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