In the 1990s, Ford Motor Company (NYSE:F)‘s Explorer, along with other SUVs, were best-sellers in the U.S. market. Their popularity led to massive profits for Ford Motor Company (NYSE:F) and General Motors Company (NYSE:GM), but they also led to short-sighted decisions by managers who assumed we would always buy gas-guzzling road hogs. That’s when things began to go downhill, and quickly.
By ignoring the growing trends of consumers who were downsizing to smaller vehicles and wanting improved gas mileage as fuel prices increased, Detroit automakers ran their businesses into the ground. Those poor decisions culminated in bankruptcies by General Motors Company (NYSE:GM) and Chrysler, while Ford escaped by restructuring on the back of its own private loans. Fast-forward to today, and the SUV is a different beast and is beginning to sell again. The more important question for Ford Motor Company (NYSE:F) is, can it sell overseas?
Why it’s important
Ford has been banking on the success of its global platforms. In the past, the company produced bulky and inefficient vehicles that barely sold in the U.S. and never sold in Europe. If Ford Motor Company (NYSE:F) is going to break even in Europe by mid-decade, as management has planned, it needs the Escape to be popular in Europe.
Many countries in Europe still have 20% unemployment, and automotive sales are expected to stay stagnant for a few years on the continent. However, there’s one segment that has grown in Europe since 2005, according to IHS automotive — SUVs.
Ford is upping its production of the Kuga (the nameplate for the Escape in most of the world) in Europe to record numbers and is refusing to dish out cash incentives, which severely hindered the company’s profits during the U.S. economic crisis.
Here’s a look at how Ford Motor Company (NYSE:F)’s utilities/crossovers have done here in the U.S. market recently.
It’s clearly led by the Escape, whose success is expected to translate overseas and make Ford Motor Company (NYSE:F) profitable in China and Europe, but the Explorer is also making a comeback. Here’s another look at how much of a comeback the Explorer has made.
Americans have always loved huge rides that sit above traffic and the sense of security gained by driving a massive tank-like vehicle. The only reason those vehicles faded in popularity was the love of something greater — the green inside our wallets that disappeared at the pump. The breakthrough in fuel efficiency has given SUVs a revival, one that isn’t likely to let up — or at least that’s what Ford is banking on.