What's going on?
No, cars aren’t about to be replaced by horses – but you’d be forgiven for thinking otherwise, based on US automaker Ford’s Wednesday announcement. It’s following in the footsteps of rival General Motors (GM) and cutting production of passenger cars in favor of SUVs and trucks.
What does this mean?
Changing lanes in response to shifting demand is nothing new in the auto industry; indeed, many runners and riders actually slashed production of gas-guzzling SUVs in 2008-10 after fuel prices hit the highway. Now, some in the industry believe that slower car sales (partly thanks to the rise of car- and ride-sharing services like Zipcar and Uber) mean some markets have already hit “peak car” – and that ownership will continue to skid downwards.
Instead, major automakers are focusing their attention on the still-growing SUV and truck markets. In 2017, GM signaled its retrenchment from European cars by selling its business to a rival. And now Ford is scrapping most of its North American cars – although it’ll continue to produce the iconic Mustang (Steve McQueen would approve).
Why should I care?
For you personally: Go big or go home – in your car, that is.
Fiat Chrysler (which owns brands like Maserati and Jeep) has also accelerated its efforts in SUVs and trucks recently at the expense of traditional passenger cars. In the US, years of low prices at the pump have encouraged drivers to look for more space and comfort from their cars (although change is afoot).
For markets: Solid results for carmakers should see them shifting up a gear.
While automakers are bracing for the impact of next-generation electric and autonomous vehicles on their production costs and bottom line, overall their first-quarter results were taken well by investors. Wednesday’s earnings report helped drive Ford’s shares 3% higher on Thursday – a day that also saw mostly positive share price responses to reports from General Motors (which struck an important Korean labor deal) and Volkswagen (where the new CEO promised higher profits in the future).