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