There’s a trend that is happening across the U.S. auto market – vehicle downsizing. Recently, consumers have more often been trading in their gas-guzzling Hummers for smaller, more fuel-efficient vehicles. If that’s the case, wouldn’t it hold true for the highly profitable truck segment as well? It would sure seem that way, but I have some numbers that show otherwise. There was some backlash from dealers when Ford Motor Company (NYSE:F) decided to kill the smaller-sized Ranger pickup in the U.S., while at the same time boasting about its high expectations for the truck globally. Let’s see what Ford Motor Company (NYSE:F)’s reasoning is and ask if the decision will hurt Ford Motor Company (NYSE:F)’s sales — and investors’ profits.
Why kill it?
Killing the Ranger could come back to haunt Ford Motor Company (NYSE:F) if the midsize pickup segment rebounds as people shift away from larger vehicles. However, that hasn’t been the case yet, and may never be. When the Ranger was discontinued Ford Motor Company (NYSE:F) still had a 25% market share in the segment. While Ford said those consumers would simply opt to buy an F-150 instead, some dealers argued that Ford “just gave the sales away” to competitors. Toyota Motor Corporation (NYSE:TM)‘s market share seems to validate that claim to some degree. The Tacoma market share went from 38% in 2011 to 54% in 2012 as Ford’s Ranger made its exit.
In Ford’s defense
At the moment, full-size pickup sales are surging in the United States. In contrast, compact pickup sales in 1994 were at 1.2 million units and in 2012 it was a meager 264,197 units. That puts in perspective what Ford means when it said it was exiting a “shrinking” market. When Ford made this decision to stop producing the Ranger, it assumed that loyal buyers would simply step up to the new fuel efficient V-6 F-150s. After seeing the Tacoma’s market share surge, you have to wonder if Ford Motor Company (NYSE:F) is questioning its ability to ever step consumers up to the F-150.
The fact of the matter is, not everyone needs a Ford-tough towing machine – like the F-150 or other models. Some prefer a useful vehicle that is needed on rare occasions, yet can still offer great mileage for the average daily driving. That said, I think Ford is correct in their decision to kill the Ranger. If you look at the quantity of Ranger sales alone, a lot of sales were from fleet purchases buying purely off the low price. The Ranger had those sales then, because current models such as the Fusion and Focus didn’t have the fuel efficiency and quality they possess today.