Ford's Looming Market Share Collapse

Take a deep breath, fellow Ford (NYSE: F  ) shareholders; the company isn't about to go over a cliff. But it is likely to lose a big chunk of a very visible market -- one that Ford has led for years, and one that has been the exclusive playground of the Detroit automakers for decades.

How visible? Very: Think about the last time you saw a police car.

You probably see police cars almost every day, though unless you're a police officer (or a crook), you likely don't think much about them -- until you see one looming behind you. And for quite a few years now, that maybe-not-so-welcome face in the mirror was likely to have been a Ford Crown Victoria Police Interceptor, the longtime undisputed leader of the U.S. police-car market.

The last bastion of the old Big Three
While Chrysler has recently made some inroads with its Dodge Charger -- the speedy Hemi-powered sedan is a favorite of a number of highway-patrol units -- and General Motors has picked up a few sales here and there, Ford is the clear king. More than 70% of U.S. police cars are Crown Vics, and about 75,000 new police cars are built and sold here every year.

But the Crown Vic is an elderly design, and next year it'll turn in its badge. All of the American automakers are launching new designs, and the battle for market share should be fierce. (And no, I don't see Toyota (NYSE: TM  ) , Honda (NYSE: HMC  ) , or any other non-U.S. automaker busting in on this party. It's anecdotal, but I know a few cops, and I suspect most of them would rather walk than drive an import while on duty, especially given Toyota's recent troubles.)

Now, I said "American automakers" -- but there's a twist: There are four companies entering this upcoming contest.

Yes, I said four. Ford, GM, Chrysler ... and one you've probably never heard of.

Get to know this new face
Unless you're a hardcore car geek or a big fan of police-car technology, I'm betting you haven't heard of Indiana-based Carbon Motors. Carbon Motors is an auto start-up with a twist: While most automotive startups have historically aimed at building unusually fast sports cars for unusually wealthy car enthusiasts, Carbon wants to be America's go-to maker for police cars, the sports car's natural nemesis.

And the upstart company, co-founded by a former police officer and a former Ford executive, might actually succeed.

Police cars might seem like a tricky niche market for a new manufacturer to break into. A newcomer have to compete with the Detroit automakers' economies of scale, and police departments understandably tend to favor proven solutions when lives are on the line. Put another way, there's a reason that almost all police cars are Crown Vics or Chargers: Cops know they work.

But as I said above, the Crown Vic is going away next year. That means those 75,000 sales a year will be up for grabs, and Carbon has been preparing for that moment for several years now. Their first model, the Carbon E7, has garnered some 12,500 preorders, the company says, on the strength of its sturdy design, cop-friendly features, and environmental friendliness.

And in a sign that they may have even more orders in their pocket, Carbon this week announced a deal to buy diesel engines and transmissions from BMW -- more than 240,000 engines, according to one source, which would power a lot of black-and-whites.

They're clearly serious. But then, so are the once-Big Three.

The established entries
Police cars have varied over the years, but they tend to be big, rear-wheel-drive four-door sedans with V8 power. Ford's new entry, however, is based on the Taurus -- a front-wheel-drive car powered by V6s. The company has clearly anticipated objections by making all-wheel-drive and a V8-like turbo engine available, at extra cost -- but given the conservative instincts of those who buy police cars, those options may not be enough.

GM and Chrysler, like Smith & Wesson (Nasdaq: SWHC  ) , L-1 Identity Solutions (NYSE: ID  ) , TASER International (Nasdaq: TASR  ) , and other companies that sell to the police market, know that many police departments want the tried-and-true. Both are sticking with the traditional formula -- while Chrysler's revised Dodge Charger, due later this year, is expected to address officer complaints about the relatively small trunk and limited visibility in the current model, it will still be a large rear-wheel-drive sedan with (lots of) V8 power available.

Likewise the new fleet-only Chevrolet Caprice, which will be built on an extended version of the same rear-wheel-drive platform that underpins the Camaro. GM has said that the Caprice will be available with a high-horsepower V8 and cop-friendly features like special seats and an oversized trunk.

And then there's Carbon's E7, which is rear-wheel drive, diesel-powered, designed from the ground up as a police car, and will supposedly be available with decidedly non-civilian options like "radiation, chemical, and biological threat detection". It's an intriguing package, but until Carbon announces pricing and releases some samples for testing, it'll be hard to gauge its likely impact.

One thing's for sure, though: That face in your rear-view mirror is going to be changing soon.

Fool contributor John Rosevear owns shares of Ford. Ford Motor is a Motley Fool Stock Advisor selection. Try any of our Foolish newsletters today, free for 30 days. The Fool's disclosure policy lacks the right to remain silent, and that's a good thing.


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  • Report this Comment On March 26, 2010, at 4:07 PM, zoomhut wrote:

    http://articles.latimes.com/2010/mar/15/business/la-fi-polic...

    ford is replacing the old crownies with new interceptors.

  • Report this Comment On March 26, 2010, at 4:20 PM, catoismymotor wrote:

    What will the maintainance costs be for a BMW powerplant compared to a Ford? Drawing on my experince as a civilian car owner the BMW, although a diesel, will still be more expensive.

    I've seen the mock up of the new Ford Taurus police car. It appears to be a formidable vehicle: http://usnews.rankingsandreviews.com/cars-trucks/daily-news/...

    BTW: I do not own F.

  • Report this Comment On March 26, 2010, at 4:20 PM, catoismymotor wrote:

    Zoomhut beat me to it!

  • Report this Comment On March 26, 2010, at 4:34 PM, TMFMarlowe wrote:

    The Taurus PI does appear to be formidable, but it will have to overcome some deeply entrenched prejudice against non-RWD cars, and a sense that a Taurus is kind of a wimpy family car (that actually counts for something in this market). I'm betting there will be some suspicions around the durability of that turbo V6 as well. If I had to guess... I'd bet on Chrysler emerging as the winner here, and I don't bet on Chrysler very often these days. But we'll see.

    Thanks for reading.

    John Rosevear

  • Report this Comment On March 26, 2010, at 4:35 PM, wjcoffman wrote:
  • Report this Comment On March 26, 2010, at 4:47 PM, ITMiy wrote:

    I believe you should read this article to bring you up to speed on the Taurus PI. Ford is not exactly swinging in the dark with this one.

    http://www.autoblog.com/2010/03/12/police-interceptor-ford-u...

    Regards

  • Report this Comment On March 26, 2010, at 5:08 PM, spawn44 wrote:

    Police car sales are far less than 1% of total annual vehicles sales. Even though this is a small market Ford is the leader for a reason and they will not go down without a fight. The new company that may enter the field is untested and depending on government money to fund a start-up. Not exactly the recipe to up end the leader

  • Report this Comment On March 26, 2010, at 6:00 PM, SMOKEN42 wrote:

    please, stick to subjects you know ,SOMETHING-ABOUT !!!!!!!!!!! CARBON MOTORS IS DREAMING IF THEY THINK THEY ARE GOING TO DENT THIS MARKET !!!!!!!!!!!!! YES SIR, I CAN SEE THEM NOW, LINING UP AT YOUR "LOCAL" BMW DEALER............... AND GET THIS, CARBON TAKES THE CARS BACK (THATS RIGHT) And SCRAPS THEM SO THEY CANNOT BE RE-SOLD.. DOES THIS SOUND LIKE A DOT-COM , CAN'T MISS IDEA ?????????????

  • Report this Comment On March 26, 2010, at 6:53 PM, soonernow wrote:

    With 365 HP in the new 3.5Liter Twin Turbo V-6, I think Ford has a winner. Seeing what Mullaley has done with Ford thus far, I'll keep my bet on Ford..The fuel economy and maintenance are big issues here as well..I also own Ford..Stock, cars and 6.75% 30yr Bonds* ( *a few sleepless night back in 2008)....The Taurus is a workhorse..I've owned 8 of them over the years as my business transportation and never, ever had any problems with any of them.

  • Report this Comment On March 26, 2010, at 7:41 PM, TMFMarlowe wrote:

    SMOKEN42, that's what I thought until a few days ago. But -- pay attention here -- BMW doesn't do these kinds of deals unless real money is involved. So something is making them take Carbon seriously. Maybe the Feds placed a huge pre-order that hasn't been made public? Something's up, and I'm inclined to take them seriously too, at least until the LAPD or someone gets their hands on some Carbon cars for testing.

    John Rosevear

  • Report this Comment On March 26, 2010, at 7:49 PM, TMFMarlowe wrote:

    ITMiy, I get the same Ford press releases that Autoblog gets. Doesn't mean I believe every word of them.

    I'm sure the Ford will be a good police car. I am less sure that departments will automatically continue to choose Fords over solid entries from Chrysler and GM. I think Chrysler in particular has a great opportunity here.

    John Rosevear

  • Report this Comment On March 26, 2010, at 9:29 PM, SnapDave wrote:

    This is all very interesting but, as some Fool pointed out this is a tiny market. How is this bad for Ford? Ford rose above the rest, in part, by drastically reducing fleet sales.

    Crown Vics likely to be missed. The body on frame is good for durability while pushing heavy vehicles out of the road. It's very stable at 130mph while the Charger is a little scary at it's 145 top. I'd want to be sticking with a RWD V8 if I was selling in that market.

  • Report this Comment On March 27, 2010, at 1:12 AM, baldheadeddork wrote:

    FWD/RWD doesn't matter any more. The #2 police car the last time I looked was the FWD Chevy Impala and its proven to be a good platform for municipal departments. Body-on-frame construction was a much more important selling point for the Crown Vic than having RWD. Hit a curb at the same speed in a Crown Vic and an Impala or Charger and the latter can cost thousands of dollars more to repair.

    When the Crown Vic goes Carbon will be the only non-unibody car in the field. But they are using an aluminum space frame that is going to be much more expensive to repair than a steel unibody, and it's also going to be a lot more expensive for Carbon to engineer and manufacture. Add that onto sourcing engines from BMW (anyone remember that they were charging Ford over $10K an engine during the switchover at Range Rover?) and I'm very skeptical about Carbon's ability to compete with Ford, GM and Chrysler on price.

    The Charger looks good on paper (RWD, big V8) but in practice it's an awful police car. It has the worst reliability and patrol cops hate it with a passion because the driver's area is so cramped after you install the radios, light controls, a laptop and a couple hundred pounds of corn-fed public servant. (Don't forget the body armor.) The Charger also has the smallest trunk which is a very big deal, too.

    Chrysler had a great opportunity to take market share from the Crown Vic when problems with the fuel tank rupturing in rear-end collisions surfaced, but they didn't go anywhere. If they couldn't take sales in that environment, they won't take anything from the Taurus and the new Caprice.

    But the big question is, will a "market share collapse" by Ford in this market mean it's making less money because of fewer fleet sales? No.

    A quick review on fleet sales: Fleet sales typically have low profits because fleet buyers don't choose a lot of options. Doesn't matter if you're talking about a utility, a rental car company, or a government purchase.

    But it doesn't mean all fleet sales are bad. Fleet production is great for optimizing the efficiency of a production plant. Ford won't make a lot of money selling Tauruses to police departments, but if they can use those fleet sales to get the Chicago plant close to optimum output it will make every car that comes off the line more profitable.

    That is Ford strategy behind killing the Crown Vic and using the Taurus for police sales. If they lose half of their police market sales but use fleet sales get close to 100% output from the plant that makes them, Ford will make more money from this program than they've made from the fleet-dominated Crown Vic in years.

    GM is doing kind of the same thing with the new Caprice. The difference is the Caprice is going to be built in Australia, which is going to add hundreds in transportation costs per car and expose the very thin fleet profit margins to the whims of the currency markets.

  • Report this Comment On March 27, 2010, at 10:32 AM, grendeth wrote:

    While no doubt vehicle sales to Police departments are important, the heading of this article seems to indicate the end of the world is near for Ford Motor.

    I highly doubt that if they do lose some of these sales, they will dramatically fold. Give us a break, they need to gain greater penetration into the car market starting with the new CD4 project (i.e. new Fusion).

    Ford also has to deep dive into the rest of the world with China, India, Russia and Latin America as their primary target.

    The world has 6 billion people while only 300 million reside in the US and yes while the bulk of the rest of the world are still unable to purchase a luxurious vehicle, have no doubt they will someday and Ford better be visible when that happens.

    Stop over dramatizing these things ya.

  • Report this Comment On March 28, 2010, at 11:09 AM, theoxenity wrote:

    I am new to investing and I am probably missing some important information to be completely accurate so please do not think I am confident that I am correct in my statements. I have been reading all of Peter Lynch's books and have been trying to follow his philosophy of investing to some degree.

    I was a computer programmer for 4 years, sold cars for 5 and now I work as a bill collector. I attempt to apply my personal experience when I am researching an investment but some contradicts the information I read by analysts.

    (Ford) The owner of my company and many others love this company but I cannot put my money in this company. I sold Toyota's for 2 1/2 years and than sold Fords for one and they simply do not compare in quality. I cannot imagine someone that would have owned a Camry would be able to convert to a Taurus. Secondly, T buyers do not have the same mentality of F buyers as they would eagerly listen to you give a presentation of the vehicle as they wanted to be informed of the value of the vehicle. I tried doing the same thing at F and these buyers eyes glazed over. The difference I found between the buyers was simple. T buyers typically have a 700 credit score and F buyers are curious what you will let them take home as their credit ratings were 650 and down. Ford does have the best “work” trucks as they are designed to be used as a work truck, but they are also typically too expensive for the working person to acquire given his income/credit. I know we all hear the annoying radio ads of your local F dealership and the obscene promises and discounts which attracts the bad credit people as they have 0$ down and owe more on their car they need to trade. So they carry over a balance of their trade to the new car, out no money down, and are living paycheck to paycheck. T buyers demand top notch rates, understand value, are in equity in their trade in, and budget their income before buying.

    Buying F in my opinion is just not an option for me.

  • Report this Comment On March 28, 2010, at 3:41 PM, baldheadeddork wrote:

    @ theoxenity:

    Welcome to investing and the Fool. I hope both are rewarding.

    Applying personal experience to an investing decision can be very helpful, but when you're working from a ground-level perspective like in your case it does have to be balanced against the macro-level data for the company, its industry, and the market and economy as a whole.

    When you get that full picture, you then need to decide if the company is correctly priced by the market. This is the whole ballgame. Even if you think a company isn't great, if the market has priced it lower than you think is a fair price then it might be a stock that you can make some money on if the market eventually sees what you see.

    This is what happened with Ford in the last year. A year ago the market lumped Ford in with GM and Chrysler, and ran the price of F down to around 1.50 because they believed the company was on the edge of bankruptcy. There's also a bias among investors against manufacturing stocks in general, and against domestic automakers in particular, for a lot of the reasons you mentioned.

    But, those of us who looked closely at Ford saw reasons to be optimistic. Ford had sufficient cash reserves to avoid bankruptcy if the economy didn't totally collapse, they had good products, and they had been getting their costs under control for several years before the economy tanked. It wasn't all good for Ford, but there was enough to make us believe that the stock was severely underpriced if the company could avoid bankruptcy. Ford did stay out of bankruptcy court and we made a lot of money on it.

    Is Ford fairly valued today? It's not as obvious today as it was last March, but I think you can make a pretty good case. Ford's market cap is a third of Toyota's, even after F's run up and TM's drop because of the unintended acceleration problems. That's a big spread when Ford is going to outperform Toyota in the Americas, Europe and China for the foreseeable future.

  • Report this Comment On March 28, 2010, at 6:20 PM, DETBJR wrote:

    Article is way overdramatic "looming marketshare collapse". Hardly.

    The new product will replace the old. Sure, some dept's will migrate to other brands, but not all.

    This is a niche segment and one that is not hugely profitable.

  • Report this Comment On March 28, 2010, at 6:39 PM, wisertwin wrote:

    Grossly exaggerating. Your little hidden agenda is so obvious.

  • Report this Comment On March 28, 2010, at 7:55 PM, bigjohnson2 wrote:

    experience: FORD AND GM. CHRYSLER, ?...

    TOYOTA: CONSIDERING THEIR "IMMORALITY" IN GENERATING QUESTIONABLE PARTS, I CAN'T MANY POLICE DEPARTMENTS WOULD PUT UP T'S GAMES.

    CARBON: SPECIALITY MARKET.

  • Report this Comment On March 29, 2010, at 6:00 AM, TMFMarlowe wrote:

    theoxenity, welcome to the Fool. This article had a flippant Friday-afternoon kind of headline, but -- speaking as the guy who wrote it -- broadly speaking, I am very positive about the dramatic changes that have happened at Ford over the last couple of years. Check out some of the other articles I've written about Ford recently, and take a look through the comments as well -- some of the discussions have been very useful.

    I hear you re your Toyota experience, but long story short, Ford is a very different company that it was even a few years ago, selling very different products. There's an argument to be made that Toyota is also a very different company, and not necessarily in a good way.

    Thanks for reading.

    John Rosevear

  • Report this Comment On March 29, 2010, at 12:13 PM, 1FootIn wrote:

    It's funny; I found the comments more informative than the article itself. The title of the article is down right ridiculous and implies a greater impact to Ford than that which can be justified. I've read the details on Ford’s new Interceptor, which is based on the Taurus platform, and it reads to be a competitive package. Speculating that it will not do well is just that, speculation. I'd stick to using the comments on this one as they’ll be more useful to the process of making an investment decision. Good Luck All... I think I’ll keep my right foot in on Ford.

  • Report this Comment On March 29, 2010, at 2:00 PM, Matt015 wrote:

    Wow, do you ever catch a lot of crap John Rosevear.

    Anyway, I'm not sure how the dying Crown Vic will play out, but in some places weather would almost incline some police departments to buy a FWD or AWD car. I'm not sure Carbon will be able to compete with Ford, GM or Chrysler. Any department that could place a large bid will probably look for the best price, and I'm not sure Carbon will compete with their premium materials.

    P.S. I liked the article title, and I'm a big Ford supporter.

  • Report this Comment On March 29, 2010, at 2:18 PM, catoismymotor wrote:

    Everyone,

    Take off your aluminum foil hats for a minute. All John has done is present us with his opinion that Ford might lose some market share if this new patrol car impresses enough police departments. That's all. To attack him like this is not productive, shows you in a bad light.

    Cato

  • Report this Comment On March 29, 2010, at 4:07 PM, TMFMarlowe wrote:

    Matt015, this is nothing. Wait'll I write another article on GM... those get pretty lively.

    The real point of the article is... here is this highly visible little market which Ford has kind of owned for years, but which is about to be thrown into disarray because the market leader is going away and there's no replacement that duplicates some of its key selling points. Carbon's apparent seriousness -- apparent because of the BMW deal, BMW not being a company to do business with dreamers -- makes it a more interesting story than whether your local PD will buy Fords or Chevys or Mopars next year, but even that is worth pondering.

    Will it matter to Ford's fleet business if they lose a bunch of share in this space? Not really. But no matter what happens, the retirement of the CVPI will be visible to just about everyone in America. I think that alone makes it interesting.

    If you're upset because I didn't say great things about Ford vs the other guys... just wait a couple days, because I suspect there will be some very good things to be said about Ford when the monthly sales numbers come out on Thursday, and I plan to be saying them.

    Thanks to everyone for reading.

    John Rosevear

  • Report this Comment On March 29, 2010, at 4:35 PM, LDSGJA wrote:

    Snow states tend to like the FWD cars, while performance enthusiasts like RWD, including Cops, they don't like getting stuck in the snow. Living in Idaho and Utah, FWD impalas were pretty common.

    Here in SoCal Chargers are already taking almost all of the new sales though - I suspect because cops like the RWD.

    But remember, COPs don't order the cars, departments do. And especially in larger cities like LA, they aren't going to order something more expensive just cause its cool, they will order whatever is the most economical - probably a V6 Ford.

  • Report this Comment On April 01, 2010, at 12:51 PM, JimBeam23 wrote:

    The Town Car dies with the Crown Vic, and this is probably more of a concern for Ford.

    Ford's Panther platform has it's virtues: It's big and tough and relatively cheap to fix. But the basic design dates back to the Carter era. Sure, it's changed in 31 years, but there is a lot of old in these cars. The styling is early 1990s vintage: A 2010 Crown Vic doesn't look too different than a 1992 Grand Marquis. The 4.6L V8 engine is basically the same. The last major update was a suspension upgrade in 2003. That was seven years ago.

    Ironically, to a certain degree the Panther is a victim of its own success. Every year thousands of them get dumped by fleet managers onto the used market. Panthers are quite good used cars. Remember, they are big, tough, and cheap to fix, all virtues that used car buyers want. It isn't unusual for a decommissioned CVPI to get another 150-200k miles as a taxicab. Ordinary buyers can get a low mileage Marquis with a lot of life left in it straight off the rental lot for about the price of a new compact.

    While it's great that Ford is making reasonably dependable cars, used car sales don't help Ford's bottom line. Instead, they kill the market for new Fords, especially rapidly depreciating ones that don't change from year-to-year.

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