Uncharted Waters: Making Sense of Ford’s Decision
It’s a headline that’s likely caught your attention; Ford is essentially ditching the compact car. The Focus is first on the chopping block, with the additional models following suit by May 2019. Once the dust has settled, only the Mustang and the upcoming Focus Active will be available in North America. As people continue to unpack the announcement, the race is on to uncover the impact this decision will have on not just the company, but the entire automotive landscape.
“It’s safe to say we’re uncharted waters,” stated Jack Firriolo, COO at Merchants Fleet Management. “In the past we’ve seen companies end models in leu of new ones, but I don’t believe there’s an instance where they stopped production across the board. As a fleet management company our job is to adapt to the shift, and then work with our clients who use Ford sedans to find a plan that works best for them.”
Part of finalizing an effective strategy starts by analyzing how we got here in the first place.
Why We’re Here
While the tendency might be to blame declining sales for the move, that was likely only a piece in the decision-making process. In fact, according to the Montley Fool the Fusion was the 7th best-selling car in 2017, and the year’s 19th best-selling vehicle overall (KBB). If the vehicles are being moved, even if it’s not at the pace Ford was looking for, then why the sudden shift? James Crocker, Director of Fleet Acquisition and Disposition at Merchants Fleet Management, believes a major part of the equation can be found at the pump. “Across the board fewer people are buying compact cars. The big reason behind this is the relatively low cost of gas, with the line of demarcation being around $4.00 a gallon. Ford has likely been following these prices for years and felt confident a spike was not imminent.”
Another reason for the shift is that most sedans do not offer all-wheel or four-wheel drive. With the introduction of smaller crossovers in the last few years, this missing feature has become a deal breaker for many consumers. In addition, Bloomberg.com is reporting; low interest rates, attractive lease offers, and longer-term loans have consumers more apt to spring for the costlier features found in crossovers and SUVs.
What to Expect
While the next chapter has yet to be written, past trends can shed light on some of what’s to come. For example, history tells us there will be a hit in the after-market demand for the various discontinued Ford models. “Typically, we see around a 10% decrease in these instances” explained Crocker. “People don’t want a car that is going away.” With this likely hit in mind, what to do about it now becomes a conversation between fleet managers and their fleet management company (FMC). Businesses who have previously used Ford sedans are now at a crossroads; they can still sell their assets (at a likely lower than expected price), choose to run these vehicles into the ground, or double down and try to find a deal on a Ford sedan. There is no right answer, as each situation is different.
Additionally, just as this decision was probably influenced by the price of gas, the pump could dictate a swing back in the other direction. In 2012 fuel efficiency was top of mind when the average price for a gallon of gas crept up to $3.60. This caused consumers to rush towards smaller vehicles until things leveled back out in 2015. Who’s to say this rollercoaster trend couldn’t happen again?
Unanswered Questions
What makes this situation tough is that Ford has been relatively mum as things have unfolded. Besides an initial press release the automaker hasn’t addressed the matter. This has led to increased speculation, adding a cloud of uncertainty surrounding the future of Lincoln sedans (Ford’s luxury division).
Even though Ford is abandoning their line of sedans, not everyone is following suit. Nissan recently announced they’re redesigning the Altima, and neither Toyota or Honda are expected to end production of their top selling compact models. While there may be a push to immediately determine the success of Ford’s strategy, it will be important not to jump to conclusions. The true impact of a shift this large could take years to play out, and the success for a business will come in adapting in each step of the way.
