DETROIT — — Ford Motor Co. wrote an obituary Sunday for the traditional sport utility vehicle, pointing to one of the key shifts in the auto market as the Detroit Three ponder how to generate profits from smaller, more fuel-efficient vehicles.
The Explorer, one of the great profit-spinners of the 1990s, will shed about 150 pounds (68 kg), abandon its truck frame and become a crossover utility vehicle with improved fuel economy and a more car-like ride.
Evidence of the explosion in CUVs is prominent in virtually every auto makers' display at the North American International Auto Show in Detroit, which kicked off Sunday.
Jumping into the CUV market quickly – as the traditional SUV market shrinks dramatically – and developing smaller cars that can be sold at a profit are crucial challenges for Ford, Chrysler LLC and General Motors Corp. amid high U.S. gas prices.
“GM, Ford and Chrysler still derive the vast majority of their profits off full-sized pickups and sport utility vehicles and even mid-sized SUVs,” said Joe Phillippi, a long-time industry analyst who heads Auto Trends Consulting Inc. in Short Hills, N.J. But the declines in those markets in recent years mean the profits have not been sufficient to overcome losses on the passenger car side of the business.
That's why the new F-series and Dodge Ram pickups unveiled by Ford and Chrysler yesterday are more important in the short- and medium-term than any of the green concept cars that are also prominent at the show.
But the key trend that will shape the next few years for Detroit was evident even in the pickup truck introductions as both companies trumpeted lighter weight and higher fuel economy, nodding to the surge in gas prices and new U.S. rules that will require fuel economy of 35 miles per gallon (6.72 litres per 100 km) across their fleets by 2020.
There are two keys to generating profit in the new world of smaller vehicles in North America, said David Cole, who heads the Center for Automotive Research, an industry think-tank in Ann Arbor, Mich.
“One is global scale and that is essential, whether you're looking at manufacturing components, platforms, technology, research and development, what have you,” he said.
Ford and GM have that scale, but Chrysler doesn't, which is why it has allied itself with Nissan Motor Co. Ltd. to sell small cars in South America and with a Chinese auto maker to make another small car.
The other critical factor that should allow the Detroit Three to get back in the black is that they have slashed their costs. Mr. Cole estimates that GM has taken $5,000 (U.S.) out of the costs of making a car in the United States.
In the bygone era of cheap gasoline, the formula for the Explorer was pretty simple. Bolt a cab on to a truck frame and print money. The Explorer America concept CUV unveiled yesterday jettisons the truck frame, which reduces weight and improves the ride.
The old version was one of the most successful vehicles in Ford history. During the three years from 1998 to 2000, Ford sold more than 1.3 million Explorers in the United States, including the peak of 445,000 in 2000. Those sales contributed mightily to Ford's staggering $32.7-billion in profit during those years.
The mid-sized SUVs cranked out by rivals GM and Chrysler padded their bottom lines in similar fashion.
But Explorer sales fell to about 179,000 in 2006, the year Ford recorded a whopping $12.6-billion loss. Deliveries slumped again last year to about 138,000 vehicles.
Mid-size SUV sales overall slumped 21 per cent in the U.S. market. Mid-size CUV sales soared 75 per cent.
But the profits are likely to be smaller in the CUV market, in part because there's more competition and the Detroit Three are late to the party.
© The Globe and Mail
