Ford’s risky decision to eliminate most cars could come back to bite them in gas tank down the road

We Americans love our massive vehicles. The Capitol Steps, one of my favorite political satire music groups, wrote to the tune of Lee Greenwood’s song “God Bless the USA”:

“And I’m proud to be an American who gets just five MPG. Though I live alone, the car I own can seat 103, and I’ll gladly park so close to you, when you pull out, you can’t see. I’ll never trade my Escalade – God Bless my S.U.V.”

‘God Bless my S.U.V.’

And of course, there is more truth to that satire than one might realize. According to a February 2018 Reuters article, U.S. auto sales fell 2 percent in 2017 after a record high in 2016, and they expect the trend to continue as interest rates trend higher.

However, demand for trucks and SUVs remained strong, with Ford’s F-series pickup trucks up 1.6 percent while sales of passenger cars plunged by 23 percent. Even Toyota, well known for their vehicles’ reliability, is seeing increased demand in pickup trucks and sales of their mid-size car, the Camry. General Motors’ market numbers were bolstered by fleet sales, but their Silverado pickup and Equinox SUV continued to gain steam while sedan and coupe sales fell.

The scuttlebutt is GM is considering cutting car lines too. Chrysler still exists as well, somehow.

GM is considering cutting car lines too.

These sales numbers led Ford to make the brash and risky decision to cull most of its car lineup in North America, choosing instead to focus on pickup and SUV sales and production. In fact, Ford’s decision was so broad that the only cars they will continue producing are the Mustang and a Focus crossover by the year 2020.

Apparently Lincoln will continue to offer cars, but Lincoln is a low performing area of the company, and has struggled to gain market share. I drive a Lincoln and understand why the brand is struggling.

While I can’t fault Ford for making a rather sweeping business decision to avoid financial problems down the road, I do feel the decision to completely dissolve their car lineup in the U.S. is short-sighted in the long term. This is because of fluctuations in gas prices causing the vehicle market to be somewhat volatile, and the ever-present threat of CAFE regulations.

I do feel the decision … is short-sighted in the long term.

For those who aren’t familiar, CAFE stands for Corporate Average Fuel Economy, and includes fuel efficiency standards as regulated by the Department of Transportation’s National Highway Traffic and Safety Administration (NHTSA), while the EPA sets emissions standards under the Clean Air Act.

The NHTSA set the standards in 2012 for the model years 2017-2021, in which automakers were projected to be required to have a combined fleet-wide fuel economy of 40.3 to 41 miles per gallon for passenger cars and light trucks. Currently, the standards for light trucks such as the Ford F150 are more lenient than those for cars, but that could change quickly.

Currently, the Trump Administration has been toying with a proposal to freeze fuel economy standards from 2020 through 2026, which would further bolster Ford’s decision to focus on their trucks and SUVs, where both sales and profit margin reign supreme.

However, keep in mind the pendulum theory, where political favor swings to a tipping point, and then swings back to the other side.

Keep in mind the pendulum theory.

Though we have strong personalities manning the Republican Party on the right, the pendulum will, inevitably, swing back to favor the Democrats, and CAFE standards will come back with them. Also, as fuel prices increase, the demand for pickups and SUVs may well shift away, leaving advancing Korean auto manufacturers such as Hyundai and Kia to rapidly gain market share by selling reasonably priced, advanced vehicles with a good warranty. Of course, Toyota will gladly sell more cars when former Ford drivers can no longer get a mid-sized sedan from their previous brand of choice.

Being a Ford guy for most of my life (except for a lengthy and expensive stint with a BMW), I’m disappointed to see these developments. I believe their trucks have become overpriced and their cars, at least the two models that will be left, are disappointing as well. Perhaps rather than cutting model lines, Ford needs to step back and reevaluate the quality and value of their vehicles. After all, if Toyota can get away with keeping a full model line for cars, trucks, and SUVs, then Ford should be able to at least make steps toward rebuilding their brand’s reputation.

Please click here to see a CNBC commentary piece by Bill George, senior fellow of the Harvard Business School who also questions Ford’s decision.