America’s Going Out of the Car Business
Ford, GM, and Chrysler are all moving almost exclusively to trucks, SUVs, and crossovers.
Ford made news yesterday by announcing it is all but phasing out cars for trucks and SUVs. But GM and Chrysler (to the extent the latter still counts as an American company) are on the same path.
Bloomberg (“Ford Is About to Abandon American Sedans“):
The Model T, the ’32 deuce coupe, the Thunderbird, the Mustang: For much of its 115-year history, Ford Motor Co. has been synonymous with cars.
But now Ford, one of the great engines of 20th Century American industry, is about to do the unthinkable: abandon the American car business almost entirely.
Just two years from now, a mere 10 percent of the vehicles rolling off Ford assembly lines and into North American showrooms will be sedans and sports cars like the Taurus or Mustang. The rest will be pickups, SUVs and commercial vehicles — more lucrative models that the company hopes will secure its future as change tears through the global auto industry.
[…]
Ford’s board ousted its chief executive officer last year and replaced him with Jim Hackett, a cost-cutter who’s prepared to make the sort of audacious gambles that Wall Street thinks have been missing.
“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. “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.”
Ford shares rose as much as 3.8 percent, the biggest intraday gain in six weeks, and were up 3.3 percent to $11.48 as of 3:16 p.m. in New York.
Hackett, 63, is choosing a route similar to the one Fiat Chrysler Automobiles NV used to pass Ford in North American profitability. Sergio Marchionne, CEO of the Italian-American automaker, killed off the Dodge Dart and Chrysler 200 sedans and retooled the factories that had been assembling them. They now build Jeep SUVs and Ram pickups instead. Marchionne aims to surpass General Motors Co.’s margins in North America before his retirement in 2019.
While scrapping several sedans paid off for Fiat Chrysler — the company almost halved net industrial debt in the first quarter — the move wasn’t devoid of risk and won’t be for Ford, either. Both may have to count on fuel staying cheap and supporting demand for Ford Expeditions and Jeep Wrangler SUVs, plus the F-Series and Ram truck lines.
[…]
In the long-term, abandoning car segments may turn out to have been the wrong move if the Trump administration’s plans for weaker mileage standards don’t last long after his presidency. And Japanese automakers also are likely to welcome less competition for some of their best-sellers, including the Toyota Camry and Honda Civic.
“For Ford, doubling down on trucks and SUVs could be just what the brand needs,” Jessica Caldwell, an analyst for Edmunds.com, said in an email. “But this move isn’t without risk: Ford is willingly alienating its car owners and conceding market share.”
By not investing in next generations of any car for North America except the Mustang, Ford now anticipates it’ll reach an 8 percent profit margin by 2020, two years ahead of schedule. Abstaining from that spending is part of Hackett’s plan to cut $25.5 billion in costs by 2022. That figure, announced Wednesday, is almost double what the CEO laid out in October.
“We’re going to feed the healthy part of our business and deal decisively with areas that destroy value,” Hackett said on an earnings call Wednesday.
While battery-powered vehicles have been money losers thus far, Ford’s plans aren’t completely inconsistent with the global march toward electrification that’s shaking up the auto industry.
Ford will hedge against risk of rising pump prices by spending $11 billion to bring out 40 electrified vehicles by 2022. Among those will be 16 battery-only models, including the Mach 1, a high-performance electric SUV coming in 2020.
The company will expand its offering of crossovers, with vehicles such as the Focus Active coming next year that combine the high-riding attributes of an SUV with lighter-weight car frames to improve fuel economy over traditional big rigs.
Ars Technica (“Say goodbye to nearly all of Ford’s car lineup: Sales end by 2020“) notes that “Ford dropped a bombshell during its Q1 earnings call” and this seems more about stock prices than profitability. A CNBC report (“Ford is basically giving up on US car business, and GM is not far behind“) quotes Adam Jonas, an analyst at Morgan Stanley, saying, “Virtually eliminating Ford’s NA car portfolio makes a lot of sense, in our view” but goes on to note,
[D]espite the fact that American companies are reshaping their lineups, sedans will still form a substantial portion of the vehicles sold in the U.S. for the foreseeable future.
“Although passenger car segments have declined over the last number of years, they are still very important,” GM’s Stevens said Thursday. “Small cars are important internationally, and they still make up a chunk of sales in the United States.”
As a January Bloomberg report (“The American Sedan Is Dying. Long Live the SUV“) notes, it was Chrysler who started this move:
Chief Executive Officer Sergio Marchionne started it off by killing the Dodge Dart and Chrysler 200 to reorient Fiat Chrysler Automobiles NV around Jeep SUVs and Ram pickups. The profit boom that’s followed has emboldened Detroit’s other CEOs to consider snuffing out sedans such as the Ford Fusion and Chevrolet Impala.
“The industry thought Sergio was a mad man when he did that, and now he looks like a genius,” said Jeff Schuster, an analyst with LMC Automotive. “He paved the way for everyone. Now, with the Detroit brands, virtually every car is under review.”
Chrysler essentially means “Jeep” at this point, with the Dodge Ram pickup and Dodge Charger Mustang-competitor all that’s left of the old-line brand. (Those of us of a certain age remember when Jeep was part of the American Motors Company.)
Essentially, American automakers are ceding a major part of the market to Asian and European competitors because there’s a larger profit margin on trucks and SUVs, which makes Wall Street happy, and because American sedans and small cars have little cachet outside the Mustang and Corvette brands. Cadillac and Lincoln simply lost their appeal to the under-70 demographic, who prefer BMW, Mercedes, Audi, and Lexus. Similarly, Ford and Chevy haven’t been able to make cars with the appeal of Honda and Toyota.
But there’s no inherent reason that has to continue indefinitely. Tesla, an American-based startup, has generated huge excitement with its Model S luxury sedan and Model X SUV, both of which are higher performing, more stylish, and more distinctive than anything coming out of Europe or Japan in those price points. They’ve had less success with their Model 3 mid-priced sedan, which is less stylish and has had production problems.
To be sure, part of the demise of the American car is about classification. A lot of the cars now being marketed as crossovers, ostensibly a cross between a sport utility vehicle and a car, are essentially station wagons. Still, Detroit is being out-designed in that segment as well.
Elon Musk has shown the way forward: make distinctive products that people want to drive. There’s simply no reason American companies can’t do that again.
Well one difference is that the Tesla is still pretty much outside the price range of the average American, and electric cars (and the charging stations needed for them to keep driving) are not nearly pervasive enough to be a major part of the market. At least not yet.
I was stuck in Tallahassee recently and rented a Ford Fusion. Granting that it’s unfair to compare a mid-price sedan to my own Mercedes, I still found the basics – steering, accelerating, and braking – off. You don’t notice all the clever little computer assists until you don’t have them anymore and the Ford wandered all over the road like a toddler. The whole vehicle felt imprecise, unbalanced, like a badly-weighted kitchen knife. On the other hand, I’ve rented Ford Mustang convertibles and those are tons of fun. Still not the precision Mercedes gives you, but a fun car.
I recently rented an Infiniti Q50 and loved it. My daughter drives a Kia Sportage and we really looked for a US choice, but in the end nothing US came close to the array of features and the basic competence of Kia. My default family rental is still a Toyota RAV, a very competent small SUV. American cars have gotten much better, but I still avoid them. They always feel sloppy.
American car designers started falling behind in the 70’s and while they’ve advanced by leaps and bounds, the Germans, Japanese and Koreans still do a better job. The Big Three skimped on design and went all-in on financial games and surprise, the companies that focused on building good cars ate their lunch.
Assuming fuel prices will stay low sounds like a perfect example of not planning beyond the next quarter.
@gVOR08: My closest station is now at $3.14/gal. and has been changing prices at mid day. I was in Korea for a long time so somebody tell me; is $3.14 considered low now?
@michael reynolds:
I am on my second Q50. This time I got the RS400 model with the twin-turbo V6. Infiniti’s official HP number is 400 (hence the model name) but people have put them on the dyno and are getting almost 400 at the wheels, which would indicate about 440 at the crank, and almost 400 lb-ft of torque. Not bad for a 3-liter engine.
The thing has so much power and it comes on so fast–max torque hits at about 1500 RPM and it’s there all the way to redline. And it has all the bells and whistles, automatic everything, dynamic suspension and selectable driving modes, etc. There’s really nothing to compare to it for the price.
U. S. car companies haven’t made small car engines for decades—they’ve all been imported. It’s not particularly sad for the auto companies to stop making unprofitable models.
However, it may well be very sad for the workers and our government should be taking action to whatever degree the production of foreign autos is being subsidized by their governments.
@michael reynolds: I also rented a Ford Fusion in Florida a couple months ago, but I had a different experience. It was a hybrid, and I was comparing it to some older SUVs that we own, but I was quite pleased with it. But then again, I had rarely driven a *car* since I sold my Toyota 86 a couple years back. Maybe I had forgotten that cars simply drive better and was overly impressed.
American car industry is stupid. Again. Film at 11.
@Franklin:
The Fusion’s not a bad car, it just doesn’t bear comparison to foreign-made sedans. It still floats at speed and the brakes hit the ABS at any stress. And the steering feels vague. But again I’m mentally comparing a 30k car to a 70k car so I’m probably being unfair. I did like the Apple Play though.
@gVOR08:
American automakers have been down this road before, and not all that long ago. It sure seems that they’re intentionally trying to get out of the passenger car business, doesn’t it?
The only times in the past 20 years that I’ve driven an American car is when I’ve rented vehicles at airports.
I’m on my 2nd Prius now, I get 53 MPG, it’s a smooth ride, hatchback tipe of rear with good space for luggage and gear. Had my previous for 8 years, 240K miles, 47 MPG, no problems or extra maintenance at all.
Why American car makers can’t roll out this level of reliability and quality is beyond me.
Trucks are what Detroit sells now, they’ve given up.
I drive down California 85 every morning to go to work. It’s slow in the morning, because of all the Google and other tech company employees that use it to get to work. But it has a diamond lane, and EVs and hybrids get to use it. I counted 20 Volt/Bolts, 12 Tesla, 8 Leafs, and a few other assorted models e-Golf and the BMW entry. I didn’t even count the Prius’ I saw.
And in an afternoon on a major surface street I counted the cars at a stop light. Over 20 percent were hybrid/EVs. I’m pretty sure we’re ahead of the curve here in NorCal, but these cars are coming.
On the subject of Ford, we owned an Escort station wagon once. I drove my kids home from the hospital in it. It’s the least favorite car I’ve ever had.
@michael reynolds: Re: Kia.
I bought my first new car in 2014 after my previous car got totaled. Prior to that, I had always bought cars that were 2 – 4 years old with low miles.
I went with a Kia Soul, and I have never regretted that decision. The number of features that Kia makes standard at their price point is pretty remarkable, the car’s performance is modest-but-solid, I have never felt unsafe while driving it, and I can’t imagine any other brand new car that I could have purchased at a similar price that has everything that my Soul has.
1. This article is misleading to the point of being bullshit. It’s counting all crossover vehicles as trucks despite the fact they’re built on unibody car platforms (e.g. the Ford Edge uses the same CD4 platform as the Fusion, the Taurus, the MKZ, and the Continental).
2. One big problem with electric vehicles is that they don’t work for people without garages or dedicated parking they can put a charging station in. If you can’t leave them charging overnight, no one is going to want to keep sitting around for an hour plus to charge it every few days.
It’s strange, like Michael, I have never been a fan of the way American cars drive. But overseas, I drive a Ford made for the European market and it’s a great little car. So I’m not sure why there is this difference, but it exists.
That’s another point to keep in mind, Ford’s international branch will continue to make and compete successfully with small vehicles in foreign markets.
One other thing I would add is the exit of diesel vehicles from the US market, which is also occurring this year or next. The only diesel vehicles will be trucks, primarily from American manufacturers. Mercedes is dumping diesel completely here, including it’s popular van chassis.
@Doug Mataconis:
Sure. But the successful Teslas are fast and stylish even by comparison with similar non-electrics in their price point. And, presumably, it would be easier to market a gasoline-engined car that looked like a Model S or Model X.
@michael reynolds:
If I were buying a sedan, it would be my choice. Nissan makes a really good car and they undersell their German competition considerably.
@Dave Schuler:
What’s interesting is that, over the last 20-25 years, so many “foreign” cars are made here. My Toyota Sienna minivan was made in Kansas City.
@Gromitt Gunn:
The Koreans are doing what the Japanese did in the mid-1970s: offering below-market cars of comparable quality. And, actually, they’ve started to do with the Japanese did in the late 1980s or so: competing on features and style as well.
@Stormy Dragon:
I noted in the OP that there’s something of a categorical sleight-of-hand here. Still, crossovers site higher than sedans and consumers seem to prefer that.
@Gromitt Gunn:
Kia is making really good cars. I occasionally drive Julia’s Sportage and it has essentially all the bells and whistles my Benz has and some things, like collision warning, that it does better. The Benz freaks out in low slanting light and thinks every shadow is a car in my path. I can’t even fault the brakes and Benz spoils you with their brakes.
The only problem we’ve had with the Kia is a tendency for the front right tire to clip curbs and cost me replacements. Twice. Though it’s just possible that’s my daughter’s driving.
@StormyDragon It’s a good point. I think EVs are a really great choice for a commuter/second car for a lot of people. And I think people are going to figure that out over time. But gas powered vehicles will remain in the fleet for a long time, since gas still has a bunch of advantages.
Nevertheless, I think Ford is missing the boat here.
@Andy:
It’s sad about diesels, for a while there they looked like a solution to the mileage issue. I rented cars in Italy (sadly, vans) for a while and the mileage in a diesel is crazy good.
Euro-Fords really are tighter I think – they have lots of competition, especially in the hatchback segment. I’ve rented Fords overseas at times, though generally in the UK or ANZ where I’m thinking less about handling and more about Aaah! Which way do I go in a roundabout? . My favorite though was an Audi A3 hatchback, a sweet little car, though a bit wider than I seemed to think as I was driving out of Edinburgh. (Sorry about the side mirrors, Edinburgh. My bad.)
Generally European drivers are just more demanding, probably because they have more tight roads, more small villages, more one-lanes, their competition in urban spaces is most often from motorbikes not big gas-gulpers, ridiculously difficult urban parking structures. (I’m pretty sure Italian parking garages are the inspiration for Tetris.) They have a tougher driving environment and we build for freeways and cruising boulevards. (If you want a lowrider, you buy American.)
We’ve had a Toyota Camry for a while (built in Kentucky) and it’s been a great family car for us. My job makes me travel a lot and I always see rentals as a kind of test purchase. I’ve definitely favored foreign makes when it come to sedans. You can tell Ford’s heart isn’t in it.
That having been said, this is a bit shortsighted. Oil is only going to go up in price, especially if we get a carbon tax or somesuch. This may be a gamble that pays off in the short term but kills them long term.
@michael reynolds:
I would love to take my Q50 to Germany and run it wide open on the Autobahn.
Unfortunately, at some point I’d have to drive it into Nuremberg and try to find a place to park it.
When visiting my wife’s family, we drive my mother-in-law’s Honda Jazz (sold as the Fit in America) and while I really miss the power of my Infiniti, the Honda is just so much easier to go anywhere in.
Apropos driving in Germany, I have a saying: In America, we learn to operate a motor vehicle. In Germany, they learn to drive.
@Jay L Gischer:
I need to see an EV that will get me from SF to LA without a two hour layover in Bakersfield. Then I’ll be all over a good EV because the better ones have crazy fast acceleration. But I don’t want to be creeping down the 5 in a big old flashlight with failing batteries.
@michael reynolds: The Big Three were notorious for designing U.S. cars for what the Big Three executives thought everyone wanted: nice, fat, cushy rides in big cars on straight, flat roads going from Detroit up to the wilds of Michigan for camping. Which is why U.S. cars have historically had the turning radius of a boat.
I had the chance back in 2014 to test drive a whole bunch of rental cars since I was visiting a friend in hospital multiple hours away and didn’t have my own car at the time. I hated the Korean cars, which came across as three-gerbil power. The US cars had too many bells and whistles on the dashboards and were sloppy in handling. The one Volkswagen I tried bounced on acceleration like a jackrabbit on speed. And my experience with keyless cars; let’s just say the less said the better.
I finally bought a Nissan.
@James Joyner
‘And, presumably, it would be easier to market a gasoline-engined car that looked like a Model S or Model X.’
No. The virtue signaling of the electric engine is part of Tesla’s appeal.
@Jay L Gischer
California offers generous tax breaks and there is a value to using a special lane in your state. Those factors don’t apply in most other places.
@michael reynolds:
Yeah, it’s a bit of an understatement to say European roads and driving are different. I lived in the UK for close to four years and there are roads there and on the continent that would be inconceivable here. Europe also wasn’t as eager to flatten parts of their cities to build highways systems and the roads to support them.
It is sad about diesels, but it seems they couldn’t pass emission standards without blatant cheating.
@Mikey:
We lived in Italy for seven months and I loved driving in Italy because it’s professional-level. You have to be on your game. The Italians do not screw around, but it’s cooperative driving not competitive, all the parts meshing neatly unless you’re an American driving like an American in which case you’re the boulder in the stream. I was totally into it. I’ve driven Florence many times and even Rome – where every single street is one-way the wrong way. I’m convinced that Roman street urchins rush around changing directional signs on one-ways just to see if they can get a tourist to drive into a brick wall in frustration.
@grumpy realist:
And my experience with keyless cars; let’s just say the less said the better.
Oh, I have two keyless cars, a Merceds and a Volvo. And the cool thing is the way they unlock as you approach. Unless they don’t. In which case you’ve tried the handle three times and now you have to fish out the key and do it the old-fashioned way. Such convenience. I’ve also walked away with my keys and left the car running on several occasions. Just because an engineer can figure out some clever new trick doesn’t make it a good trick. (I’m looking at you, iPhone 8 engineers, you meddling nitwits.)
As for Kia, ours is a six. I try to avoid 4 cylinder cars. The Kia with a six takes off pretty well. And to be honest in the mid-range the Kia transmission is better than the Benz’s. But for the extra 40k you get to drive around looking like a dude who’d spend 40k just to look cool driving around looking cool. So there’s that.
Correction: the Kia is a 4, the Volvo is a 6. Also a competent vehicle but zero fun to drive.
@James Joyner:
That categorical sleight of hand is also driven by the CAFE standards, which put all the crossovers into the light truck category, instead of the passenger car category where they clearly belong.
I just want a car where a 6’6” body can fit behind the steering wheel, and which doesn’t have insane blind spots…
Also, it must come in a bright, vivid color.
@Andy:
I drove around Cornwall with my family in a rented, full-sized Volvo station wagon. I still have nightmares.
@Gustopher:
What are you, some kind of communist? Look down a road or across a parking lot these days, it doesn’t seem like anybody buys anything but black, white, and various grays. I have a rule about not buying pavement colored cars. If you wanted to camouflage a car, particularly at night or on a rainy day, what colors might you paint it? Don’t buy cars those colors.
I sometimes wonder if it says something about our national psyche that everyone dresses in black and drives black or grey cars.
@grumpy realist: Keyless … christ this is a poorly-thought-out idea. How ’bout when your spouse jumps out to get a table at the restaurant, accidentally taking the fob with them? The vehicles freaks out and eventually shuts down in the middle of the goddamn road (or thankfully for us, just the parking lot).
I’ve never owned an SUV. As some car magazine said years ago, there’s nothing an SUV does that something else doesn’t do better. Thinking about the marketing of SUVs (sit higher, mines bigger’n yours) makes one think Freud was on to something after all. I was raised on sports cars. I’m slowly conceding modern, high end, automatic trannies are pretty good, but I’m still a little into “If it doesn’t make the car go, or make the car go faster, why is it on the car?”
We’ve settled into my daily diver being a bit sporty (currently a Mazdaspeed3, turbo, tight suspension, big tires, hoot to drive) and my wife’s being a minivan (Honda Odyssey). Our fifth or sixth minivan ( I forget how many early Dodges we went through). Minivans have the cargo space of a Suburban, OK fuel mileage, and sedan-like handling. The only downside is no image. (Why didn’t Iaccoca call them “sport haulers” or something instead of “minivan”?) As I’m one of those pragmatic, unimaginative STEM types people were bitching about a day or two ago, I don’t care. You even sit high, if that’s a thing for you.
@gVOR08: @gVOR08: Ha. I’ve got two cars: A 2013 BMW 335is convertible and a 2010 Toyota Sienna minivan. The former is fun to drive and my daily commuter; the latter is my kid and crap hauler. They are, alas, silver and black, respectively.
@Franklin: @gVOR08:
One of the reasons I went for my Nissan Versa is the bright blue color, making it obvious in a parking lot. (I still wish I had hung out for the peacock blue instead, which was the next year’s model.) The thing turns on a dime, which has proven to be extremely useful when a) dealing with local traffic b) getting in and out of the public parking garage, and c) avoiding smashing the local Canadian geese that stomp around acting as is they own the place. (They do.) And it’s surprisingly roomy when it comes to being able to pack boxes in the back.
The main bells-and-whistles I went for was making sure it was an automatic and getting the rear-view-camera option.
@michael reynolds:
Well, at least you know your Volvo has been moose-tested, no?
@gVOR08: As a child, I was hit by a car while crossing the street — it was a white car, and there was a snowstorm, and the damn thing was invisible. I will never understand why we have cars in anything less than really bright, visible colors.
If I could get a car in traffic cone orange, I would.
(Subaru has a perfectly fine orange that looks like fall foliage, so for 50 weeks of the year it would be entirely acceptable… alas, it is only on the cars I don’t fit in. Honda has a pretty good day-glo green, but designed their interiors to block my legs… the Dodge Charger has potential)
I think you mean nominally “American” car manufacturers are getting out of the passenger sedan business. To say American cars and mean Ford, Chrysler, GM is obscurant. I own the American-made pickup, the Toyota Tundra. Fords aren’t made in the US, even with the company head offices in America.
It was 15 years ago in some federal procurement training when the procurement office head pointed out that if Toyota wanted they could challenge every federal government purchase of “American” autos. Few met the requirement of the Buy American Act but Toyota did. That they didn’t was pure PR related and based on the fact they didn’t need the hassles of federal procurement.
@michael reynolds:
You think that’s a nightmare try driving in Germany. When I worked in Germany I drove a (rented) Ford. On the Autobahn I could barely get out of the way of the Mercedes and BMWs barreling down the road at 120 mph fast enough.
yep… rented a Q50, and when asked how I liked it, I said it was like driving Batman’s car. Very cool. Great acceleration.
But like most American’s I’m not a sedan person….
Which is weird, because Tesla is building sedans… so there must be a market for overpriced four door toys, right?
I will admit, I did pull the trigger and bought a Orange Chevy Bolt. 4 door hatchback, tight suspension, 100% Electric, $13,500 on tax rebates. I do not miss the gas stations or oil changes.
It goes well with My Orange Honda Element… and my Orange ’69 convertible corvette. My wife’s Audi A4 Quattro convertible in red is the odd one out.
Step 1: Admitted I was powerless over my car addition and my life has become… pretty darned cool!
Waiting for my 100% electric 2+2 convertible, and some magical 100% electric vehicle that can take the place of the Honda Element.
@michael reynolds:
I worked in Rome for 6 months. I loved driving I Rome and all over the peninsula.
Of course, I’m a former Detroiter, where fast is just the way things go. In Italy, once I figured out that they drive like I drive… I was in nirvana.
Brazil was also a challenge. fast and aggressive. was there for nearly 3 years… never got around to getting a driver’s license. Loved my little Mercedes A160 🙂
Autobahn… yeah… loved it too. Replicated the same in the USA going across the great open Midwest in a 1989 corvette convertible (white, red interior). Luckily my wife is cool with 120MPH+. Say what you will about the ‘vette C4, that thing loved to eat up the highway!
Ford is doomed.
“crossover”: another name for station wagons.
How about the van/mini-vans? Are they still made?
EV cars: would sell more if NASCAR would create an EV racing series.
And Dodge needs to be in racing – they would sell more cars.
Detroit needs to set the trends, not follow Japan.
My last gas fill up was $2.44/gal. Too high. Trump better keep an eye on this.
Smart cars: how long until we get to a highway, no hands, read a book or watch a movie car trip?
@Tyrell: They don’t have to make minivans (although some are). Most crossovers and some SUVs are just glorified minivans…
Best US production motor ever: Ford Boss 429 – 600 horsepower, then Chrysler hemi, Chevy 396.
@Gustopher:
God gawd. I hope you weren’t badly hurt.
I came close to hitting a guy a couple years ago. Predawn, unlit intersection, black guy dressed all in black.