Ford Motor Co. (F) announced yesterday that by 2022, the only sedan it will continue to produce in the United States is the Ford Mustang. Say “bye-bye” to the Taurus, the Fusion and the Fiesta, because the company is going to shift virtually all of its U.S. production focus to SUVs, crossover vehicles and pickup trucks. This was pretty surprising news, because it marks a major shift in what the company does. The question is, is this also an early indication of the kind of change that will shape the future of the entire auto industry?
The interesting part of this is that Ford isn’t the first U.S. automaker to decide on such a fundamental change in their business approach. They aren’t the trendsetter, because the fact is that Fiat Chrysler Automobiles (FCAU) made a similar decision more than two years ago. They cut production of all but three of their sedans (the Chrysler 300, and the Dodge Challenger and Charger muscle cars) in favor of focusing on their Ram trucks and Jeep SUVs. That lends strength to the argument not only that the sedan is less relevant than ever, but also credence to the notion that more automakers will follow that trend.
Of the “Big Three” U.S. automakers, only GM plans to keep making traditional cars. There is considerable speculation that GM will be forced to trim the number of sedans they currently offer; in particular, the Impala large sedan and Sonic small car are reputed to be on the chopping block. Even so, while they acknowledge the facts – sales numbers clearly demonstrate more and more U.S. drivers are abandoning sedans in favor of SUVs, crossovers and pickups – they contend that with Fiat Chrysler and Ford both all but completely exiting that segment of the industry, there is a good opportunity to pick up a worthwhile level of the remaining market share. And in a sense, that makes sense; just as Chrysler is the first name you think if you want to buy a minivan, GM has an opportunity to step into the space their brethren are vacating and become the de facto brand U.S. consumers associate with traditional sedans.
Arguments in favor of the direction Fiat Chrysler and Ford are now following start with the steady decline in sedan sales. That decline is, at least in part a reflection of the fact that light trucks and SUVs are more fuel-efficient than ever; the new diesel version of the Ford F-150 pickup, for example is expected to boast 30 miles per gallon on average. Add to that the reality that hybrid vehicles and all-electric SUVs are becoming more and more popular; it isn’t altogether unimaginable that fuel prices in the future could become largely irrelevant.
GM, of course isn’t alone in their belief that while the market for sedans is declining, it remains a worthwhile business to pay attention to. The fact is that sedan sales on imports from automakers like Honda Motor Co., Toyota Motor Corp., and Volkswagen AG to name a few have outpaced those for U.S. sedans for years, and these and other players haven’t announced any intention to give up that market. That means that it isn’t a given GM will capture the market share it seems to be shooting for. Even so, it clearly represents an opportunity they believe is worth going after.
For Ford and Fiat Chrysler, the question is whether they are simply preempting the rest of the competition in making a move that everybody will eventually be forced to follow, or is it conceivable that the market could shift back against them? It may be true that adoption of more fuel-efficient vehicles, including all-electric SUVs or even trucks will only increase; it is also possible, however that demand for sedans could return. Hybrids and all-electric vehicles remain more costly than their fossil-fuel-burning counterparts, and a significant increase in energy prices, including oil, near or to the $100 per barrel level last seen in 2014, for example could push consumers back to smaller, less-expensive vehicles. History shows that popular car models periodically come back into vogue; consider the recent resurrection by Ford of the previously discontinued Ranger light pickup and Bronco SUV, and Chevrolet’s reintroduction (and elimination) of the Impala at multiple different points over the last 50 years.
This week’s news does seem to mark an interesting inflection point in the automotive world. The effects aren’t likely to be seen in a significant way for several years, but in the ongoing struggle in any industry or market for companies to find ways to differentiate themselves from their competitors, Ford seems to be following Fiat Chrysler’s bold lead.