IT’S NOT THAT you’re getting smaller. It’s that automobiles are getting bigger.
Last week Ford announced that it would wind down U.S. production/sales of passenger cars—excepting its Mustang and the sort-of-sedan Focus Active—in favor of more popular and profitable trucks, SUVs and crossovers. By 2020, 90% of Ford’s North American sales will consist of larger vehicles with lower fuel economy, because nothing bad ever comes of that.
Ford noted the accelerating shift in consumer preference from cars (sedans, hatches, coupes) to beefy vehicles. And how. Sales of car-based models fell nearly 11% in 2017 (AutoData); while sales of pickups, SUVs, crossovers and vans rose 4.3%, to 10.9 million. That was about 60% of all light-vehicle sales.
Isn’t it lucky that Ford’s most profitable vehicles are also its most popular? Later on I’ll propose a more direct through-line.
Someone in the WSJ office said it was the end of an era. It’s more like the beginning of the 1990s, when Ford, outsmarting federal fuel economy standards, built and marketed the hell out of the Ford Explorer, which as a light truck was subject to lower standards.
The Explorer set off the SUV craze and a decade-long size spiral in vehicle design, culminating in such absurdities as GM’s Hummer H2 and Ford’s own Excursion SUV. That party ended with the oil price spike of 2000s, but I guess Ford CEO and president
is too young to remember.
Now, as then, Ford and others are exploiting a well-crafted loophole in fuel economy regulations that makes bigger more profitable. In 2011, the industry won a change in the EPA’s calculation of Corporate Average Fuel Economy (CAFE). The “footprint rule”—which refers to the area within the perimeter of the four wheels—calculates a vehicle’s fuel economy as a function of its size. The rule change effectively incentivizes building larger vehicles by holding them to progressively easier standards. As a result, the largest and most profitable vehicles also enjoy the lowest relative costs of compliance. The rule change also constituted a backdoor tariff on more efficient imports, but that’s another story.
Exactly one vehicle-design generation later, the footprint rule has rippled through the auto market like a displacement wave. The average new vehicle on the American road is longer, wider and taller than the vehicle it replaces. And correspondingly more profitable.
Because vehicle size and fuel consumption are highly correlated, this trend is reliably captured in average fleet fuel economy. After years of improvement, the average EPA mileage of vehicles sold in the U.S. has stagnated around 25 mpg starting in 2015, according to the University of Michigan Transportation Research Institute.
While on an individual basis most models are at least as fuel efficient as their predecessors, the shifting weight of consumers moving into larger crossover and SUVs has negated those gains.
Perhaps you’ve noticed, in parking decks, how bulky SUVs seem to hang out of both sides of a parking space? Or in city traffic where your only hope of seeing the traffic signal is if the driver of the pickup ahead of you slides open his rear window?
Check the growth charts of any familiar name plate: A 2008 Ford Explorer XLT measured 193.4 inches long and 73.7 inches wide. The 2018 model is 4.9 inches longer and a whopping 5.2 inches wider. The 2019 Ram 1500 Crew Cab is 3.9 inches longer than the previous model on a 4.1-inch longer wheelbase. The 2019 Chevy Silverado pickup is 1.6 inches longer than before on 3.9-inch longer wheelbase. All of these truck platforms are available with SUV top-hats.
‘The average new vehicle on the road is longer, wider and taller than the vehicle it replaces. And more profitable.’
Vehicles classified as light trucks are already subject to lower standards than cars. And for CAFE purposes a crossover with all-wheel-drive qualifies as a light truck. The combined effect of these rules helps produce a vehicle like the Subaru Ascent: a large crossover (about 5 inches longer than Toyota Highlander), 260 hp, and a relatively light regulatory burden. EPA combined fuel economy: 23 mpg.
I don’t mean to suggest the footprint rule is the only growth stimulant. A half-decade of moderate fuel prices is the prevailing cause. Big feels good. It’s cheap value-added for the car makers; and because margins are higher, per inch, they can afford to juice sales deals and spend more on marketing.
The footprint rule just makes the automakers’ size profiteering a tiny bit sweeter.
There are also the inflationary effects of global hyperwealth/the death of shame. May I direct your awe to the Vision Mercedes-Maybach Ultimate Luxury Concept, which debuted at the auto show in Beijing last week? Two weeks ago I got a behind-the-curtain look at the Rolls-Royce Cullinan SUV: a royal elephant of an auto estimated at 5.3 meters long and 1.9 meters high.
In my view, Ford’s announcement last week was about the weather in Washington, D.C. Management has calculated that it will no longer need the mileage offsets from sales of smaller, less-profitable vehicle lines to meet its CAFE obligations. Last month Environmental Protection Agency Administrator
announced an effort to roll back the 2025 standards hammered out by the agency and automakers during the Obama administration. It is also widely expected that Mr. Pruitt will go after California’s waiver under the Clean Air Act allowing it (and 11 other states) to set its own tailpipe rules.
Both CEO Hackett and executive chair
William Clay Ford Jr.
have tried to distance the company from Mr. Pruitt’s “rollback” and have said they would prefer compromise to confrontation with the California Air Resources Board. Somebody should tell their D.C. lobbyists.
In his congressional testimony last week Mr. Pruitt said the softening of standards was necessary due to “consumer demand” for larger and more capable vehicles.
Really? Are hills steeper now? Are boats harder to tow? Are families larger, or pieces of 4×8 plywood? The latest generation of supersize vehicles offers little in the way of real-world advantages over its predecessors. In many cases it’s just more unused capacity. A 2017 survey conducted by the University of Michigan reported that light-truck owners use their vehicle predominantly for transportation (68.9%) and commuting (65.4%).
Automakers always say they just aim to give the customer what they want, but they never mention the billions in advertising and marketing spent convincing customers what they want. Just like in the 1990s, the industry is pushing larger vehicles precisely because they are profitable.
HAVE YOU DRIVEN A FORD LATELY? // A Century of the Brand’s Most Influential Cars
The assembly line brought the
Ford Motor Co
mpany’s Model T to the masses. It could be topped with any number of body styles, from roadster to closed sedan.
The Lincoln-Zephyr Continental Cabriolet started life as a design for
personal car, based on a Lincoln-Zephyr, but much lower.
The 1960 Edsel Ranger, based on a Ford Ranger two-door, was produced in the final year of the Edsel brand’s short life, as coupe, sedan, convertible and station wagon.
HBO’s “Entourage” showed off the the Lincoln Continental’s charismatic rear suicide doors in the last shot of its opening credits.
This top-selling sedan was Dearborn’s answer to Japanese import competition, and it was a good one. The Taurus’s aerodynamic design earned it the nickname “jelly bean.”
Ford’s immortal full-size service sedan, platform mate of the Lincoln Town Car, was the backbone of American police and taxi fleets.
The Town Car was a durable, premium sedan that was favored by the livery trade until it was discontinued in 2011. In Los Angeles they are still called “studio cars.”
The 2013 Green Car of the Year was a hood ornament of the One Ford philosophy: a global car, built for the Americas in Mexico but sold all over the world.
Published at Thu, 03 May 2018 17:42:22 +0000