After more than a century-long run, giant automakers like Ford can no longer escape the obvious: The demand for traditional cars is beginning to dry up, thanks to the evolving tastes of millennials and baby boomers, experts said.
Ford announced plans late Wednesday to eliminate some of the company’s most well-known cars in North America, including the Fiesta subcompact, Fusion midsize sedan, Taurus large sedan and the C-Max van, according to Ford’s quarterly earnings statement. The decision followed years of declining car sales.
Ford said eliminating most of the company’s cars except for two models will allow the company to focus on their “winning portfolio” in the United States, Canada and Mexico. The Detroit automaker plans to keep the Ford Mustang sports car and a new Focus crossover that the company plans to release next year.
The changes will also allow the company to devote more resources to SUVs and trucks, vehicles that have surged in popularity as consumers continue to lose interest in passenger cars, which no longer have a monopoly on good gas mileage. Ford also plans to bring 16 battery-electric vehicles to market by 2022.
The company’s latest cuts will not affect Lincoln sedans, including the Continental.
“We will refresh our entire lineup of traditional crossovers and SUVs that everyone knows, like Explorer and Escape,” said Jim Farley, Ford’s president of global markets, according to USA Today. “And then we’re going to be introducing and taking capital and redeploying it for also new silhouettes, products that give the customers the utility benefits without the penalty of the fuel economy.”
The push toward SUVs is being driven by a growing number baby boomers and millennial car buyers, both of which favor SUVs over cars and make up a majority of the car-buying market, according to experts.
Experts say consumers are drawn to SUVs and crossovers for their versatility. The vehicles offer more space, a higher ride off the ground and the ability to accommodate families.
Some buyers gravitate towards them for an even simpler reason: they feel like they’re easier to get inside than a car that is lower to the ground.
Unlike a decade ago — when a combination of rising gas prices and economic anxiety led consumers to opt for smaller vehicles — a new generation of efficient engines have made SUV purchases a sound choice financially. The reason that many consumers resisted buying SUV’s — bad gas mileage — has been eliminated by “tremendous engineering improvements,” according to Michelle Krebs, an executive analyst at AutoTrader.com.
She said Ford’s decision to invest outside of cars was an obvious answer to changing market conditions, especially as car sales have plummeted over the past two years.
“Ford’s car sales have been abysmal,” she said, noting that she has expected Ford to abandon the Taurus for years. “They’re king of the truck market, and their SUVs do well, but they’re losing money on their cars.”
Ford is not the only company reacting to the growing appetite for bigger vehicles. With their emphasis on outdoorsy Jeeps that sit high above the road, Fiat-Chrysler has invested heavily on SUVs. General Motors has also reacted to changing market trends, offering customers a growing number of crossover SUVs in recent years.
“I think we have been on this path for a number of years,” GM CFO Chuck Stevens told reporters this week, according to CNBC.
There were about 17.2 million cars and trucks sold last year, according to Kelly Blue Book, a decrease from the previous year’s 17.6 million sales.
Some of the best-selling vehicles on the road — many of them well-known cars — also saw big decreases in sales last year, according to Business Insider.
Ford Fusion sales, for example, declined 21 percent while Nissan Altima sales declined 17 percent. The Toyota Corolla, still among the world’s best selling cars, saw sales decline by 14 percent and the Honda Accord saw sales drop by more than six percent.
The Nissan Rogue, meanwhile, saw sales increase by more than 22 percent and the and the Toyota Rav 4 saw sales jump by nearly 16 percent.
Robert Kreipke, Ford’s corporate historian emeritus, pointed out that Ford has been defined by more than just cars for more than a half century now, citing the company’s success with pickup trucks like the F-150, which debuted in 1948. Before starting Ford, Kreipke said, Henry Ford — the company’s legendary founder and namesake — had worked on trucks as early as 1899. Ford went on to release its own truck in 1917.
“The company has been multi-faceted for a long time,” he added.
For some analysts, Ford’s latest move was hailed as decisive and necessary.
“The passenger car rationalization plan is just the sort of bold and decisive action we believe investors have been waiting for,” Ryan Brinkman, an auto analyst at JPMorgan Chase & Co., wrote in a report Thursday, according to Bloomberg. “It is indicative of a management team for whom there are no sacred cows and which seems increasingly likely to pull other such levers to aggressively improve earnings and shareholder value.”
Company officials said the shift was based on declining demand and profitability, but Ford reported $1.7 billion in profit for the first quarter in 2018 — a 9 percent increase, compared with the same period last year.
Fiesta and Taurus could be eliminated from Ford’s offerings as early as next year, but the Fusion could remain in the company’s lineup for several more years, Ford said. The company has already sold 43,176 Fusion Sedans and 35,046 Ford Focus in 2018. Meanwhile, the company has sold 19,164 Mustangs this year.
The company’s stock closed up 2.88 percent Thursday to $11.43.