Why Ford Is Making This Huge Strategy Shift
Ford recently announced plans to cut jobs and shift production away from sedans and toward sport utility vehicles and crossovers. The company’s commitment to the working truck, or pickup, market is unwavering. But de-emphasizing sedans—where Ford has had great success with models from Taurus to Fusion to Focus—is a noteworthy shift in strategy.
First and foremost, Ford is responding to evolving consumer tastes and uses. The “family” vehicle needs to fill multiple roles, from commuting to ferrying soccer players to delivering a night on the town. Crossovers and SUVs are better suited to this multi-tasking, with their roomy interiors and flexible seating and storage options.
Ford realizes that the sedan market is flooded with inexpensive imports from Hyundai, Kia, Nissan, and others. European automakers have a lock on the high-end sedan market, and—with the exception of a few vehicles such as the Lincoln MKS—Ford has limited investment in this area. For Ford to compete in the popularly priced sedan space, it needs to produce basic cars that eschew the sophisticated electronic systems that increasingly define the modern driving experience.
It’s chosen to instead include these enhancements in SUVS and crossovers—where consumer demand has been rising. These new vehicles are more fun to drive and in particular safer because of advances in vehicle technology. These enhancements span relatively mature categories such as anti-lock brakes and upgraded on-board computers and navigation systems to advanced driver assist systems, which provide everything from lane warnings to automated braking. New infotainment options turn the vehicle into an Internet hub.
The driver of this trend has been an increase in average sticker price. The average U.S. new vehicle price rose from around $31,000 in 2013 to around $35,000 in 2017, according to our propriety research. Growth in the dollar value of vehicle sales amid declining unit sales signals that consumers are willing to pay up for enhanced safety and a better driving experience.
Another factor affecting the shift to crossovers and SUVs has been the trend in fuel costs. Gasoline prices have reached relative stability in the mid-range between peak and trough levels. Our research suggests that gasoline costs are no longer a top consideration in vehicle choice, as they have been during past periods of spiking gas prices. Consumer indifference to or at least lessened concern about gas prices is partly a result of the significant amount of enhanced electronic features devoted to fuel efficiency in the modern vehicle. Since consumers are fine with buying vehicles that may use slightly more gas than a sedan, Ford has naturally decided to start to producing more of those vehicles.
Ford’s shift to crossovers and SUVs coincides with a shift in consumer preference to multi-use vehicles that are safer, more fuel-efficient, and more fun to drive. Ford, like all automakers, has more room for margin expansion with its higher-ticket vehicles. The evolution in consumer tastes and Ford’s push for higher margins have come together serendipitously in the modern crossover and SUV.
Bill Selesky is senior research analyst, automotive, and Jim Kelleher is director of research and senior analyst at Argus Research.