It should have been obvious: a car company heavily selling gas-guzzlers would hit a snag when oil prices flew off the charts. However, the good people at Ford are having some problems coming to grips with that very idea.
Where did it all go wrong?
The Big Three (Ford, General Motors, and Chrysler) were riding high on the SUV wave (which sounds like an incredibly dangerous metaphor) for years. Very profitable times for them and they ‘practically’ put all their eggs in one basket. I guess you could call that a ‘bad idea’.
You see, the profit margins on SUVs and big trucks are significantly higher than compact and ‘economy sized’ cars. The bigger the truck, the more people were willing to spend on it, the cheaper it was to make, the more people wanted it – a nice little cycle. But now don’t even mention the profit margins on those ‘San Francisco-lifestyle’ hybrids to these guys. It was hard enough getting them to, only now in the past few years, jump on the hybrid/alt-fuels bandwagon.
In spite of all the high oil price news and the relative certainty of $4/ gallon as a unpleasant fixture in the near future, Ford kept on saying things would be fine. According to an article on today’s CNN Money:
Ford Motor Co. (F), despite repeated pledges that it would post a pretax profit in 2009, on Thursday abandoned that goal, largely because of the speed by which consumers are switching to more fuel-efficient vehicles. The auto maker said the shift is structural, not cyclical, and it will have to further cut costs and production to adjust to lower demand.
Ford’s truck and SUV sales fell 18% in April versus a year ago, while GM and Chrysler posted declines of 27% and 25%, respectively.
The question one needs to ask is, ‘what were these Ford guys thinking?’ Ford’s CEO was ‘assuring’ shareholders not less than 2 weeks ago that the company’s sales were going to make a huge turnaround in the summer season.
Maybe they thought people would want to stockpile oil because it’s becoming so expensive, and therefore … they would need huge trucks and SUVs to carry those big barrels? Yeah, that must be it. Good guess, guys.
Are we way off base about the Big Three? Don’t hesitate to enlighten us in the comments section.
CNN Money: Auto Cos Pressured As Truck, SUV Sales Wither On Gas Costs, May 22, 2008