Please ensure Javascript is enabled for purposes of website accessibility

Ford Has a Lot Riding on the New Bronco Family

By Adam Levine-Weinberg - Jul 19, 2020 at 10:05AM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

The 2021 Ford Bronco and 2021 Ford Bronco Sport will help Ford gain market share from Fiat Chrysler's Jeep brand and (hopefully) support a return to profit growth in North America.

Last week, Ford Motor (F 2.84%) finally revealed its long-awaited Jeep fighters: the 2021 Ford Bronco and 2021 Ford Bronco Sport. Ford first announced that it would revive the iconic Bronco nameplate in January 2017, but because of the long development process typical of the auto industry -- and the need to get these products right -- the new Bronco family is only now coming to market.

The Ford Bronco is a rugged SUV targeting the off-road market currently dominated by Fiat Chrysler's (FCAU) Jeep brand (especially the Jeep Wrangler). The Bronco Sport is a smaller, versatile SUV that is also suitable for off-roading. If the new Bronco family becomes successful, it could help bolster Ford's sagging profitability in North America.

The Ford Bronco returns

Ford has been stoking investors' hopes with respect to the Bronco for several years. In 2018, Ford announced that it would discontinue virtually all of its car models in North America: the Fiesta, C-Max, Focus, Fusion, and Taurus. Those models were losing money, and the goal was to replace that volume by expanding the company's lineup of crossovers, SUVs, and trucks. Those segments are all profitable today and have grown in recent years. To support this strategic shift, Ford's 2018 five-year business plan called for just 6% of its investments in North America to go toward cars, down from 33% in its 2015 plan.

The 2021 Ford Bronco is an important piece of that strategy. In a presentation last year, Ford said that discontinuing the Focus and C-MAX and changing over the company's assembly plant in Wayne, Michigan to build the reintroduced Ford Ranger and Bronco (which share a platform) would boost annual operating profit by more than $1 billion.

2-door and 4-door versions of the 2021 Ford Bronco in a rocky landscape

Image source: Ford Motor Company.

The new Bronco will hit dealer lots next spring, with a starting price of $29,995. It comes in two- and four-door options, with removable doors and removable roof panels for a true off-road experience. There are numerous ways to customize the 2021 Ford Bronco to meet buyers' specific off-road needs. With some high-end option packages, the Ford Bronco's price can top $60,000.

Early reviews for the Bronco are very positive, with some reviewers saying that the Bronco has thoughtful features that could make it superior to the Jeep Wrangler: its main competition. Last year, Fiat Chrysler sold 228,032 Jeep Wranglers (and 923,291 Jeeps of all models) in the U.S. Thus, if Ford can grow the off-road market and gain market share from Fiat Chrysler, the Bronco could become a significant profit contributor.

Analysts at Credit Suisse estimate that the Bronco alone could earn nearly $1 billion annually in North America if unit sales reach 125,000 per year. Ford appears to have even greater long-term ambitions for sales volume -- which could drive correspondingly higher profit.

The Bronco Sport adds to the range

Wisely, Ford is looking to capitalize on the buzz surrounding the Bronco revival by expanding the nameplate into a vehicle family with the 2021 Ford Bronco Sport.

A Ford Bronco Sport fording a small stream

Image source: Ford Motor Company.

Unlike the full-size Bronco, which is built like a truck with a body-on-frame design, the Bronco Sport shares its underpinnings with the unibody Ford Escape. However, the Bronco Sport still has surprisingly good off-road capabilities, and its styling is much closer to the Bronco than the Escape.

The Bronco Sport will compete with Jeep's smaller models: the Renegade, Compass, and Cherokee. Its starting price is only about $2,000 lower than the full-size Bronco, bur pricing tops out at around $40,000. The Bronco Sport will be built at Ford's assembly plant in Hermosillo, Mexico, where Ford Fusion production is scheduled to wind down this month. It will hit dealer lots near the end of 2020: sooner than its larger cousin.

Are these new models the key to a turnaround at Ford?

So far, Ford's North America turnaround strategy hasn't gained traction. In 2019, Ford's car sales plunged 29% year over year in the U.S. -- as expected -- but crossover and SUV sales also declined nearly 7%. Lost volume from product changeovers for the Escape and Explorer models and serious quality problems with the latter model contributed to that weak performance.

Meanwhile, Ford's operating profit in North America fell to $6.6 billion last year, down by about $1 billion from 2018. As recently as 2016, Ford churned out an impressive $9 billion operating profit in the region.

However, broadening the product portfolio was always a key part of Ford's game plan in North America. The Bronco Sport will complement the Escape, which was deliberately made more car-like in the new generation that launched last year. The full-size Bronco will capture off-road SUV demand that Ford hasn't been able to address in recent years.

Ford's decision to create a more differentiated product lineup in North America centered around trucks and SUVs will likely prove prescient, as the segments it is targeting should hold up better than the overall auto market in light of the COVID-19 pandemic. The Bronco and Bronco Sport could help Ford grow its earnings in North America over the next two years or so, despite what may be weak market conditions.

Adam Levine-Weinberg owns shares of Ford. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Ford Motor Company Stock Quote
Ford Motor Company
F
$15.73 (2.84%) $0.43
Fiat Chrysler Automobiles N.V. Stock Quote
Fiat Chrysler Automobiles N.V.
FCAU

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
377%
 
S&P 500 Returns
123%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 08/08/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.