What’s Driving Ford and GM’s Decisions to Increase Truck Production?
Recently, both Ford and General Motors announced that they were reducing production of cars and moving that freed up manufacturing capacity to produce more trucks, SUVs and Crossovers. And while we at FNHI see that as a potential positive for our Worksport subsidiary, one wonders what is really behind these decisions.
There is no shortage of opinions on the matter but so far three things seem to stand out (and none of them paint Ford and GM as superheroes!).
1. Customers want larger vehicles. Maybe that is what several years of lower gas prices gets us. Or too many trips through the fast food drive through! We don’t care too much about the price of tea in China as the old retort to an irrelevant question or statement states. But we do notice when the price at the pump goes up or down. Ford’s numbers show their 2017 US Sales of traditional cars dropped by 11 percent while sales of its larger vehicles including pickups, SUVs, Crossovers and vans increased by 4.3 percent. And its announcement said that by 2020, 90 of its sales will be larger vehicles. Some commenters are wondering if Ford will stop making cars completely.
2. Larger vehicles are more profitable to the manufacturers and to the dealers. This is important because higher list prices create higher profit margins and those higher margins provide the resources for beefed up marketing campaigns and dealer/customer incentives.
3. US CAFÉ Standards have lower requirements for larger vehicles. During the Obama administration the EPA raised fuel standards for U.S. made vehicles. Included in that were offsets essentially meaning that the higher gas mileage of smaller cars sold in larger numbers could “raise the average” fuel economy an automakers full line of products. However, in 2011 the automotive industry was able to win a concession from the EPA on something known as the footprint rule which governs the relationship between a vehicle’s “footprint” and the fuel standard (gas mileage) for that vehicle. As a result, larger vehicles are allowed to get lower gas mileage. And now those offsets are no longer needed. That helps open the door to making bigger vehicles. In the past few days, GM announced that it is moving from a six-cylinder engine to a four-cylinder engine in its full-size Chevy Silverado pickup. Or perhaps this is a hedge against gas prices that are starting to creep up again and a repeated emphasis on higher CAFÉ requirements in the future.
Perhaps the one thing we can take away from all of this is that as trucks get larger, and in some cases more expensive, they are more likely to be viewed as more of an investment to protect. And that could be good news for Worksport and FNHI. And you, our investors.
One thing the articles reviewed did not talk about was the impact of Uber and Lyft on car buying. As more people decide not to have a car that will also bring sales of cars down. While this is more of an urban phenomenon it is already having an impact. However, it is unlikely that anyone with tools and materials will Uber to a job site.
Until next time, keep your passengers safe by using seat belts and your cargo safe by using your Worksport tonneau cover.