From the Wall Street Journal, May 3, 2018,
The Real Reason Ford is Phasing Out Its Sedans (paywalled, but you can find it at archive.vn):
Last week Ford announced that it would wind down U.S. production/sales of passenger cars—excepting its Mustang and the sort-of-sedan Focus Active—in favor of more popular and profitable trucks, SUVs and crossovers. By 2020, 90% of Ford’s North American sales will consist of larger vehicles with lower fuel economy, because nothing bad ever comes of that.
Ford noted the accelerating shift in consumer preference from cars (sedans, hatches, coupes) to beefy vehicles. And how. Sales of car-based models fell nearly 11% in 2017 (AutoData); while sales of pickups, SUVs, crossovers and vans rose 4.3%, to 10.9 million. That was about 60% of all light-vehicle sales.
Isn’t it lucky that Ford’s most profitable vehicles are also its most popular? Later on I’ll propose a more direct through-line.
Someone in the WSJ office said it was the end of an era. It’s more like the beginning of the 1990s, when Ford, outsmarting federal fuel economy standards, built and marketed the hell out of the Ford Explorer, which as a light truck was subject to lower standards.
The Explorer set off the SUV craze and a decade-long size spiral in vehicle design, culminating in such absurdities as GM’s Hummer H2 and Ford’s own Excursion SUV. That party ended with the oil price spike of 2000s, but I guess Ford CEO and president Jim Hackett is too young to remember. Now, as then, Ford and others are exploiting a well-crafted loophole in fuel economy regulations that makes bigger more profitable. In 2011, the industry won a change in the EPA’s calculation of Corporate Average Fuel Economy (CAFE). The “footprint rule”—which refers to the area within the perimeter of the four wheels—calculates a vehicle’s fuel economy as a function of its size. The rule change effectively incentivizes building larger vehicles by holding them to progressively easier standards. As a result, the largest and most profitable vehicles also enjoy the lowest relative costs of compliance. The rule change also constituted a backdoor tariff on more efficient imports, but that’s another story.