On the first day of October, 1908, Henry Ford unveiled the first Model T car from Piquette Avenue plant in Detroit. The car was an instant hit among the Americans. With the Model T (also known as Tin Lizzie,) Ford changed the way how people commute. By the time Ford decided to bring the curtains down to Tin Lizzie, the company had sold a whopping 15 million cars.
Fast forward to April 2018, CEO James Hackett revealed that Ford is axing all the sedans in North America by 2020 barring just the Mustang and Focus Active that is expected to be launched next year. That’s a radical shift for the automaker with a heritage of 115 years. Right from inception, Ford has been synonymous with cars for Americans, putting millions of people in the drivers’ seat.
CEO Hackett, speaking to investors in the recent earnings call, said, “given declining customer demand and product profitability, we will not invest in next generations of traditional Ford sedans for North America.”
Ford’s decision doesn’t really come as a surprise as consumers gradually move towards utility vehicles, crossovers, and trucks ditching sedans.
SUV and crossover sales over the past 12 months witnessed double-digit growth in sales, while sedans and small car sales plunged. In addition, auto industry forecasting firm LMC Automotive has stated that by 2022, two-thirds of the sales (73%) in the US is expected to come from SUV segment.
The automaker’s decision also made sense from margins point of view because cars are low-margin business compared to utilities and trucks, which brings in better profitability to the company. Ford has been under pressure for some time as it was not adept at responding to the changing industry landscape, emerging technologies like self-driving cars and electric vehicles. It also saw a slump in its car sales due to changing consumer preferences, which also hurt its financials. This doesn’t make the cut with investors, which is reflected in the stock price, which is down 25% since 2014.
Ford said it will continue to focus on SUVs, trucks and crossovers. Thanks to lower oil prices, it’s not pinching customers much in their monthly fuel bills despite these vehicles being gas guzzlers. But things are changing now with oil prices increasing steadily due to production cuts and brewing trade wars.
The company is aware of the fact and has plans to add hybrids to its portfolio. The automaker also has scheduled to roll out its battery-based vehicles in 2020, with a planned line up of 16 electric vehicles by 2022. It also expects to touch 8% profit margins by 2020 compared to 2022, as stated earlier.
One need to wait and see whether the new changes announced by Hackett will revive the fortunes of Ford. Hundred years after the iconic launch of Tin Lizzie, Ford is again at crossroads. It would be interesting to see whether this is the beginning of a new era? Ford reported better-than-expected first quarter results. Sales improved 7% to $42 billion, while profits rose 9% to $1.7 billion.
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