Ford Motor Co. isn’t quitting the car business—just the unprofitable car business
There were doubters on Ford Motors plan for a future with very few traditional passenger cars, but former Medtronic Chief Executive Bill George was positively alarmist, suggesting on CNBC that this decision could prove fatal to Ford.
Please calm down. Ford still builds the bestselling vehicle in America, the F-Series pickup. And to suggest that Ford Motor Co. is quitting the car business is silly. After all, it plans to keep building its Ford Explorer and Escape.
Yes, I know an Explorer is typically called a sport utility vehicle. But really, its past time to stop being fooled by the carmakers on that one. Its a car.
What Ford is doing is quitting the unprofitable car business.
That fundamental misunderstanding seems to be a big part of the head-scratching reaction that followed Fords description of a future with nearly 90 percent of its sales in North America coming from trucks and SUVs. Of its traditional passenger cars, only the Mustang and an updated Focus small car will hang around.
Ford has promised to increase profits, but its not a company in trouble that feels the need to act rashly. Last year in its home market Ford was the bestselling automotive brand, with sales of nearly 2.5 million vehicles.
The F-Series pickup remains the family jewel, as sales last year increased more than 9 percent to about 900,000 of them. Earlier this week Ford reported generally disappointing April U.S. sales, except it had the best April for F-Series pickups in 18 years.
Meanwhile, traditional passenger car sales have been collapsing, declining last year for Ford Motor by about 14 percent. Sales last year of the soon-to-be-euthanized Ford Fusion, a midsize sedan, declined by more than 56,000 units, or 21 percent.
By now consumer enthusiasm for SUVs is old news, but its still remarkable how poorly understood it is how this big change in the market came about. Its basically because somebody had the good sense to build a taller car and try calling it something else.
Even automobile enthusiasts cant seem to decide on the first modern version of this vehicle. The idea of putting a comfortable, station wagon-style cabin on top of a trucks chassis goes back at least to the 1950s.
But it does seem pretty clear that the so-called crossover vehicle that first sparked real enthusiasm was the mid-1980s Jeep Cherokee. It was of the family of the original Jeep, the U.S. Armys beloved little utility truck of World War II. Yet the Cherokee was a car.
As for why it was a car and not a truck, start with its unibody design. A vehicle made like that basically doesnt have a heavy steel frame like a pickup truck or old-fashioned SUV, instead getting its structural strength from all the pieces of the body coming together.
You shouldnt try making a cheap convertible out of an old unibody car by removing the roof with a cutting torch. The car could break in half just leaving the driveway.
The Cherokee performed just fine off-road, but it wasnt meant to be used on a farm or to take materials to a construction site. Driving a Cherokee was a stylish and fun way to get a family to the grocery store or hockey practice. It was a lighter, easier-to-drive and more-efficient vehicle than anything built as a truck, and it was sportier than a station wagon.
Ford Escape built like a car
Ford had its own SUV in the market when the Cherokee came out, and Ford introduced its more family-oriented Ford Explorer in the early 1990s. Unlike the Cherokee, though, the first iteration of Explorer shared the DNA of a pickup truck. Ford only later introduced its Escape that was built more like a traditional car.
And it was late to the market. The large market segment of small crossovers is now led by the latest generation of Toyota RAV4, first introduced in the U.S. market in the mid-1990s. Last year the RAV4 even outsold the Toyota Camry sedan, which has long been the countrys top-selling traditional passenger car.
In the early 2000s light trucks first outsold cars for the year and recently it hasnt been a close race. Last year crossovers alone accounted for more than one third of U.S. vehicle sales, and nearly one out of every five vehicles sold last year was a small version called a compact crossover.
Theres even a relatively new category called the subcompact crossover. In the same April sales report where Ford disclosed that conventional cars were not quite 21 percent of unit sales, management highlighted the building sales momentum for its new EcoSport crossover.
Versions of this vehicle have been sold in other countries for a while, and its based on the same basic platform as Fords subcompact Fiesta conventional passenger car. And putting the two side-by-side is a great way to grasp the financial reality of the car business.
Both vehicles are built of the same basic design and are about the same size, although the EcoSport is a little taller. The biggest difference between them is price. The Fiesta price starts at about $14,200, and its on its way out. The EcoSport starts at $19,995, and here sales are just getting started.
Ford noted that a bright spot for EcoSport sales is a model that features an efficient, 1.0 liter engine. Im not enough of an auto enthusiast to quickly picture it, but I suspect that engine fits comfortably in my kitchens refrigerator.
If Ford executives want to insist on calling this a light truck or SUV, fine, although they shouldnt really care. They need to care that its what the customer wants and that selling one can make some money.