Ford Says Small Cars Are The Future

2009 Ford Fiesta (European Model)

FORD’S GEORGE PIPAS PONTIFICATES “
Small Cars are the Future,” He Insists
By Steve Purdy
TheAutoChannel.com
Detroit Bureau

Chicago November 12, 2009; George Pipas, Ford’s top sales analyst, is as entertaining as he is astute. He said that he once hoped to be a controller, a serious numbers guy, but they wouldn’t let him because he smiles too much. He was in Chicago this week to reveal to members of the Midwest Auto Media Association what he and presumably the Ford team are thinking about what the future will bring in terms of product trends.

He began by establishing his credentials and credibility. In 2003 in a speech to the Lehman Brothers auto analysts he predicted “the best days for SUVs are behind us.” That prediction came at a time when gas was $1.38/gallon and Ford had just sold 433,000 Explorers in one year. Most saw no end in sight for big SUVs. But Pipas did.

In 1990 full-frame, truck-based SUVs accounted for less than 6% of the US market. By 2002 that number had grown to 24.6%. With gas prices low and the consumer in self-indulgent mode it didn’t appear to most folks that a substantial change was coming. But, as Pipas predicted, by 2008 SUVs had given way to car-based crossovers, or CUVs.

What Mr. Pipas saw that the others did not were the demographics. Seventy-five million boomers were rapidly becoming empty nesters, they were beginning to experience physical limitations making it harder to climb into the big rigs and he realized that gas prices really weren’t as big an issue as most analysts thought. Boomers have plenty of money and will buy what they want over what they need. And, they began wanting CUVs.

Ford’s president of the Americas, the dapper and handsome Mark Fields, also bought into that philosophy. He is quoted as saying, “Small is big in America. Small cars are ripe for bold design and innovation.”

“So, how will Ford make money concentrating on a segment of the market that until now most have considered not profitable enough to justify such emphasis?” I asked.

After teasing me with his assessment of that as a “hard ball” question he explained that the answer is volume and content. With the upcoming new global Focus platform and the hot new Fiesta, the economies of scale will be big enough to make decent profits. No longer will Ford need different platforms for cars of the same size around the world, they can amortize development costs over 2 million units or more rather than a couple hundred thousand. And they’ll get better prices from suppliers on millions of identical parts, dashboards and the like.

Equally important, again, are the demographics. The upcoming generation of buyers – Millennials, or Ecoboomers or Gen-Yers or whatever we call them – will demand more content like electronics and style. There is good reason why the Ford/MicroSoft SYNC system was first introduced in the Focus and not a Lincoln product. That’s what the youngsters want. The average Lincoln buyer couldn’t care less about a voice activated audio and communication system.

But the youngsters sure care. “They want more than econoboxes,” Pipas insisted. In fact, he adds, many of them will make substantial sacrifices for the well-equipped, high tech stuff they want, be it automotive or not, and will go without rather than compromise their desires.

Another factor that cannot be overlooked is government policy. We just wrapped up what most analysts consider a successful cash for clunkers program. Europeans have used scrappage programs repeatedly to stimulate sales of new cars and to get older, less efficient ones off the roads. Time will tell whether the US program was a flash in the pan or whether it actually jump-started the industry.

Back to the topic of the day – “What’s Next” – here’s the prediction: the trend to smaller cars and CUVs will continue. Within a few years we will have seen a 180-degree turn from the 70% trucks and SUVs and 30% cars and CUVs that existed in 2004 to the exact opposite.

This month, at the LA Auto Show, Ford will reveal the production version of the fresh, new, youth-oriented Fiesta, already a sales hit in Europe. Then in January in Detroit we’ll see the new Focus that Ford expects to be their bread-and-butter car throughout the world. That’s a good start.

Ford just posted its first gain in market share since 1995 in spite of the fact that they only have one small car. Toyota has 6.

Sounds like Ford could on the right track.

That’s what I like – a numbers guy with a sense of humor.

Let’s see if he’s right.