There's a trend that is happening across the U.S. auto market – vehicle downsizing. Recently, consumers have more often been trading in their gas-guzzling Hummers for smaller, more fuel-efficient vehicles. If that's the case, wouldn't it hold true for the highly profitable truck segment as well? It would sure seem that way, but I have some numbers that show otherwise. There was some backlash from dealers when Ford (NYSE:F) decided to kill the smaller-sized Ranger pickup in the U.S., while at the same time boasting about its high expectations for the truck globally. Let's see what Ford's reasoning is and ask if the decision will hurt Ford's sales -- and investors' profits.
Why kill it?
Killing the Ranger could come back to haunt Ford if the midsize pickup segment rebounds as people shift away from larger vehicles. However, that hasn't been the case yet, and may never be. When the Ranger was discontinued Ford still had a 25% market share in the segment. While Ford said those consumers would simply opt to buy an F-150 instead, some dealers argued that Ford "just gave the sales away" to competitors. Toyota's (NYSE:TM) market share seems to validate that claim to some degree. The Tacoma market share went from 38% in 2011 to 54% in 2012 as Ford's Ranger made its exit.
In Ford's defense
At the moment, full-size pickup sales are surging in the United States. In contrast, compact pickup sales in 1994 were at 1.2 million units and in 2012 it was a meager 264,197 units. That puts in perspective what Ford means when it said it was exiting a "shrinking" market. When Ford made this decision to stop producing the Ranger, it assumed that loyal buyers would simply step up to the new fuel efficient V-6 F-150s. After seeing the Tacoma's market share surge, you have to wonder if Ford is questioning its ability to ever step consumers up to the F-150.
The fact of the matter is, not everyone needs a Ford-tough towing machine – like the F-150 or other models. Some prefer a useful vehicle that is needed on rare occasions, yet can still offer great mileage for the average daily driving. That said, I think Ford is correct in their decision to kill the Ranger. If you look at the quantity of Ranger sales alone, a lot of sales were from fleet purchases buying purely off the low price. The Ranger had those sales then, because current models such as the Fusion and Focus didn't have the fuel efficiency and quality they possess today.
Right or wrong, Ford seems to be sticking to its guns so don't expect the global version of the Ranger – that's selling well – to make an appearance back in the U.S. market. Ford is going to focus on the F-Series to juice profit margins. Rather than having the Ranger as an entry-level truck, it's going to do all it can to position the F-150 with EcoBoost options to fill that spot.
The EcoBoost engine now gives Ford the flexibility to position the F-Series for different types of consumers, and it knew those options were on the way when they canceled the Ranger. If the Atlas concept comes through as expected – hitting CAFE standards out to 2025 – it's possible it would have rendered the Ranger obsolete. The other side of the coin is that the Ranger filled a niche in the market, and if vehicle downsizing moves into the truck segment it could be a decision Ford regrets.
When it comes to investing in Ford, a decision like this won't have much impact at all. Ford's vehicles are selling incredibly well, and not having the Ranger won't stop the sales momentum Ford is enjoying. Ford hasn't made too many mistakes since Alan Mulally became CEO, so I'll stand by the decision to kill the Ranger. What do you think? Let me know in the comments below..
Fool contributor Daniel Miller owns shares of Ford. The Motley Fool recommends Ford. The Motley Fool owns shares of Ford. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.