If your business was losing $800 million a year on a product, what would you do? Chances are you’d do whatever is necessary to stop the bleeding, and ensure long-term financial stability for the company ahead of a forecasted market downturn. Even if it means sending shockwaves throughout the industry.
According to a UBS analyst, an estimated $800 million is what Ford Motor Company is losing annually on building cars. The only reason Ford remains in business is because its truck and SUV models are so lucrative. In fact, Ford pulled in an estimated $3 billion in the first quarter of 2018 from these high-margin vehicles, only for these profits to subsidize money-losing ventures.
CEO Jim Hackett decreed that Ford Motor Company will “feed the healthy part of our business, and deal decisively with the parts that destroy value.” In doing so, Hackett and company have uncovered $25.5 billion in estimated cost savings by 2022, far ahead of the original $14 billion in savings it previously identified in October 2017.
Of course, this strategy will leave major holes in the lineup of Ford in the short term, and naturally, dealers aren’t too thrilled about it. It wasn’t too long ago when sky-high gasoline prices kneecapped truck and SUV sales, causing the sales mix to favor smaller, more economical passenger cars. However, unlike the case a decade ago, Ford Motor Company has a very realistic $11 billion electrification strategy in development, and thus should make customers more immune to price spikes at the gas pump, should they elect to buy them when they begin to enter the market in 2022.
Ford announced that it will discontinue the entry-level Fiesta, the compact Focus, the midsize Fusion, and the slow-selling Taurus. The company had previously announced the discontinuation of the bulbous C-Max and boxy Flex hatches. There’s no word yet on what will become of the facilities or the workers that assemble these ill-fated products. In their place will be the Chinese-built Focus Active compact hatchback, which is all-new, while the iconic Mustang remains safe as the emotive draw to the brand.
Ford will offer a plethora of crossover and SUV models, starting with the EcoSport, to the Escape, then the Edge, capped by an all-new Explorer and king-size Expedition SUVs. Other SUV models on the way include the all-new Bronco, a “baby Bronco“, and an electric crossover, improperly named Mach 1.
Source: Automotive News
Comments
To clarify. They don’t promote their cars like BMW, Mercedes, Toyota either on tv or any other medium, that is why they aren’t selling. You just undermined the value of my excellent 2017 Ford Fusion Sport. I will never buy another Ford. Done.
True, this mismanaged company not only doesn’t promote their cars, they also don’t update at all them hoping customers will buy yesterday’s technology. Which explains why they don’t sell
Hopefully the next vehicle you buy will never be discontinued. Really, carmakers discontinue making (or importing) different models all the time. I’m glad your car has been so good at least.
It’s truly understandable why ford is slashing its cars, they don’t sell. However what they should do is follow the dodge model of a muscle coupe a muscle sedan, suvs and trucks. They’d be fine. A mustang a s650 chassis falcon, the upcoming explorer, the bronco the baby bronco the performance electric crossover the expedition and the trucks should be ford’s whole lineup. Kill Lincoln, bring back mercury and call it a day.
The notion that “Ford cars don’t sell” is woefully incorrect.
The reality is that Ford cars sell in varying degrees of success, from decently to well… which is actually pretty good given their age (Ford cars are currently the oldest in the industry in each segment, outside of Mitsubishi) and the reputation issues Ford has had to overcome to sell its cars (the current batch of cars have helped Ford change its reputation/image significantly).
The reason Ford was losing money on cars is because it didn’t structure the programs correct (from a dollars/cents standpoint) to begin with. What it should have done is built all cars in a low-cost market such as Mexico or China, and exported them from there to the States. Yes, a few outliers would have complained, but the vehicles would have been profitable, avoiding this entire situation.
Heck, they probably could have built the cars in Europe (a high cost labor market), exported them to the states, and still turned a profit since EU plant utilization would have been very high in such a scenario.
To get rid of all cars (that sell in relatively good volumes) is an extremely short-sighted move. I have a feeling we’re going to see them re-evaluate it and backtrack on their decisions with the solutions I outlined above at some point before the current cars go away… or risk losing half of their sales volume and customer base. Now THAT would be disastrous.
The last thing Ford needs is a ‘muscle coupe’. Let Dodge (or ‘Stellantis / Fiat’) have what is left of that dying market. Chevy couldn’t even sell enough Camaros to keep it in production anymore and IMO it’s a very sharp car.
While stop making some cars…might make sense….but car like the Fusion…which was selling aprox 200,000 a year….should have been saved..that be hard to make up….reminds me of axing the Ranger pickup….also Ford has a habit of axing to many vechicles and there products…and customers will keep that in mind…while making payments on a car …and now the resale will tank…Ford cant make money on cars made in Mexico?. whats the new Lincoln car buyer to think?…whats next…when say a suv doesn’t sale…..like the Taurus X.?….I think young people will buy cars…expecially when gasoline gets $3.00 a gallon…Ford needed product mix…they have a crowded market in SUVS….and with Explorer- Edge- Escape…how many more do they want…the reason their cars tanked…is they went back to old habits and didn’t keep them refreshed…. also Ford has a quality problem that needs to be job 1…..that would be a fresh idea…the main reason they made the bold announce,, to car dealers dismay ,,,whose car values and desire factor will tank…is Hackett…drunk the coolaide…of trying to satisfy Wall Street…while making money paying divendend…and will only get a bump in stock price..for this casualty…in the end they panic over nothing….
Ford has a lot of issues they need to work on with their cars. They really do need to do a lot different
The problem is CAFE regulations favor trucks over cars because of the the light-truck loophole. this is why CAFE encourages car companies to make gas guzzling SUVs because they were easier to meet the less strict fuel economy standards for cars. CUVs along with cars should face the same MPG target.
also…for a small or large business…your get to depreciate faster or write off. a SUV..pickup-van.if weight is 6.000 gvw on the door…cars don’t offer that….
Another perverse incentive. I think 42-45 MPG for all vehicles would be perfect and there would be no loophole. However 2500 and 3500 trucks (SUPER DUTYs for Ford) would be exempt because that would be impossible plus they are needed for heavy duty jobs so the lower power would not work well. Also the production would be limited to around 20K per year and only 12K for chassis cabs.
42-42 mpgs is also impossible for an F150 and most vehicles on the road today which are not even trucks. My cousin ownes a Toyota hybrid which can do it, but it’s sure not a truck.
This mismanaged company claims they have an $11 billion electrification strategy in development, the problem for this strategy is that there is no infrastructure in place for electric cars at this moment. Also as a sedan guy, I have no interest in their crossovers, SUVs, pick up trucks or the Mustang, and I’ve owned Mercurys since 1987, goodbye Ford.