Have You Invested In Ford Lately?

Ford is getting out of the car business. Okay, not completely: they're keeping the Mustang around. But for the most part, they're just gong to sell trucks and SUV's. Chrysler has essentially done the same thing; their only cars are some stagnant Dodge sedans and the Fiat 500.

Even if SUV's are big sellers, I'm still skeptical. As many have been pointing out, the SUV craze may only live as far as low oil prices, and that won't be forever.

This could lead to a bigger version of what happened with the recession in the 2000's, where Americans suddenly wanted fuel efficiency, but American manufacturers had let their small cars fall behind the competition. This time it could be worse, because they wouldn't even have those cars available.

And word is that the biggest reason for this is not Americans' preference for trucks and SUV's, but profitability. SUV's are more expensive, and fewer people base their purchases on price, so there isn't as much pressure to keep the prices down. Thus, manufacturers make a lot on each sale, and the corporate books look good, even if market share suffers.

That's unusual, because market share has traditionally been the big indicator of success in the American car biz. So this move is showing us how much influence Wall Street has on even the biggest companies. But investors don't always have concern for a company's long-term health.

That brings up my main concern when American manufacturers start ignoring the low end of the market: that strategy sets it up so that most people buy their first car from one of the imported brands. In an industry where brand loyalty is a big deal, that sounds like a disastrous strategy, at least in the long-term.

And it gets worse when you combine it with another big trend in the car business: really long loans. It used to be that car loans were in the four year range, but now car makers are happily pushing 84 month financing. If they're going to be relying on more expensive products now, you can expect the long loan trend to accelerate.

But the flip side to this SUV trend is that although they may be replacing cars, SUVs are also becoming more car-like. The Toyota C-HR (SUV) is 1,565 mm tall while the Mazda 3 (car) is 1,455mm tall. So the difference between a car and an SUV is a mere 11 cm (about 4"). Seeing them parked beside each other, they don't look that different. I guess this isn't really that surprising: Although people want SUV's, they still want things cars are better at providing, like efficiency and maneuverability, which is forcing SUV's to get more car-like. So I’m suspecting that a decade or so from now, We’ll be right back to where we’ve always been, driving cars, but we’ll be calling our vehicles "SUVs" instead of "cars."