Ford recently announced they will be dropping the majority of their vehicles in production except for the long beloved Mustang and another yet to be released vehicle, the Focus Active. The auto maker stated that this change is in response to the love affair North American consumers have with SUVs, trucks, and crossovers.
This is a bold move, but Ford estimates that SUVs will make up half of the US market by 2020. By getting rid of the less profitable sedans, Ford aims to see a cost reduction of $25.5 billion by 2022 and estimates an 8% profit margin by 2020.
This move stems from CEO Jim Hackett’s bid to revamp the companies image and earnings. A Bloomberg article quotes Hackett as saying:
“We’re going to feed the healthy part of our business and deal decisively with areas that destroy value…We aren’t just exploring partnerships; we’ve now done them. We aren’t just talking about ideas; we’ve made decisions.”
While SUVs and trucks are popular with consumers at the moment, it’s a risk to concede part of the market to sedan and hatchback makers like Honda and Toyota.
With smaller cars offering better gas mileage and maneuverability, particularly for drivers in urban environments, this move will definitely put Ford to the test. However, it seems the company has already anticipated the gas mileage concern, as a TechCrunch Managing Editor Matt Burns mentioned that By 2020, Ford will add five high performance SUVs with hybrid powertrains and one fully battery-electric model.
This shift to Trucks and SUVs is not unique to Ford, as Fiat Chrysler CEO Sergio Marchionne similarly cut the smaller Dodge Dart and Chrysler sedans in favor of Ram Trucks and Jeep production. A move that helped Fiat Chrysler surpass Ford in profitability. Even BMW is betting on SUVs to help them overcome Mercedes in the luxury market.
But for now, we will have to wait to see if this bet pays off.
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