Analysts applaud Ford's move away from sedans

Ian Thibodeau
The Detroit News

Ford Motor Co. is doubling down on trucks and SUVs. But is the Blue Oval making the same mistake it made 17 years ago?

Not even close, experts say.

CEO Jim Hackett’s plan to divert money from passenger cars to more profit-rich trucks and SUVs aims to fund larger investments in mobility and autonomous vehicles.

He’s also pushing to make every Ford sold in the United States a connected vehicle within two years and to shift money from gas and diesel engines to development of electric powertrains.

Leaning again on light trucks might reek of old Ford. But those segments were overhauled and expanded over the past decade. And analysts say the monumental swing American consumers made away from trucks and SUVs to small cars when gas prices increased to more than $4 per gallon before the Great Recession — a shift that gutted auto industry profits — isn’t likely to happen again.

“The idea that people will run back to cars was true 10 years ago, 15 years ago, but that’s just really not true now,” said Karl Brauer, an analyst with Cox Automotive. “You just get so much more benefit with an SUV, and now you don’t really get any downside like you used to.”

They come in more shapes and sizes than earlier generations. They’re more fuel-efficient, sporting a wider array of powertrains. And they’re more flexible, delivering the higher seating positions familiar to SUV drivers with the handling of cars.

Buyers have shown overwhelmingly they want bigger vehicles. According to U.S. sales data from Autodata Corp., they bought three trucks and SUVs for every two cars this year. Consumers can get the space and utility they want without sacrificing much fuel efficiency.

Ford, come 2018, will be selling a more diverse group of light trucks than it had in the early 2000s. From the 2018 EcoSport subcompact to the new Expedition, or the $94,455 fully loaded Super Duty Limited pickup, Ford’s lineup will be stable moving forward, analysts said.

Profits from those segments, combined with Hackett’s additional pledge to shift about a third of the capital currently used to develop gas and diesel engines to electrified vehicles, is intended to propel the company through a period of disruptive changes in coming years.

“They want to be prepared for whatever emerges,” said David Cole, chairman emeritus of the Ann Arbor-based Center for Automotive Research. “Are they prepared for a dynamic future? A requirement in this is that they’re profitable. If you can’t make money on this stuff, it’s not good for anybody.”

Gas guzzlers gone

Details of Ford’s plan are scarce, but profit-rich trucks and utilities are a valuable crutch for the company with little downside for consumers.

The gas-guzzling behemoths of the early 2000s have been replaced by more fuel-efficient models that are the key to funding the new future-looking investments in mobility and electrification Ford plans to make.

Crossovers have also filled a gap for the company. Late-’90s and early-2000s body-on-frame SUVs closely resembled their full-size pickup cousins. They offered bumpy rides and poor gas mileage, making it comparatively easy to ditch them when the global oil prices shot up.

Modern unibody SUVs and crossovers — typically based on cars — are smarter products, experts say. And Ford, maker of the nation’s best-selling truck, fully understands that.

Jim Farley, Ford executive vice president and president of Global Markets, told investors in New York that the company will cater to global wants and needs with SUVs. Europe will see more urban utility vehicles and crossovers; China will see bigger, seven-seat crossovers; in the U.S., the investment means more nameplates, some new, in the utility segment with credible off-road capability.

The Ford Bronco is expected in 2020. Joe Hinrichs, Ford executive vice president and president of Global Operations, has said that hotly anticipated vehicle will look and feel like an off-roading vehicle, but the company hasn’t offered many details on that product.

The company will also have a small truck back in the lineup when the Ranger returns in 2019.

Where will ax fall?

The company plans to further diversify. Not all trucks and SUVs are created equal, and Ford wants to fill as many niches in those segments as possible. Ford SUVs are outselling cars at about three utes for every two cars; trucks are closer to two to one.

“We want to leverage where we’re really strong,” Farley told Wall Street. “It’s really credible for Ford, and it’s a real opportunity for us to grow even faster.”

There will be fewer nameplates overall, but Ford has not said which cars will get axed. Cole expects there won’t be many sedan models left in Ford’s line-up when the company finishes its transition into a mobility and an automotive company.

Wall Street isn’t impressed with Ford’s plans. The stock price has moved less than 30 cents per share since Hackett told investors what he planned to do. And it hasn’t been worth more than $13 per share in more than a year.

But the experts see glimmers of change that might be under-appreciated in the investment community. One example: a company operating with an eye on the future would boost its biggest profit-generators — and trim products with slimmer margins — to fund electrification, mobility ventures and autonomous research.

“The way business works is you plan for the future and you fund it with what makes money today,” Brauer said. “There’s still plenty of demand for an internal combustion-powered truck and SUV. And nobody’s saying that when the car world goes all electric, trucks will go away.”

Twitter: @Ian_Thibodeau