Please ensure Javascript is enabled for purposes of website accessibility

Ford Doesn't Need the Ranger Anymore

By Adam Levine-Weinberg - Apr 20, 2013 at 12:59PM

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

Did Alan Mulally and company make the right call?

Last week, my colleague Daniel Miller argued that Ford's (F 2.64%) decision to discontinue the Ranger pickup in North America was a mistake. Ford recently introduced a new version of the Ranger in most international markets, but it won't be sold in the United States. Daniel argues that Ford is unwisely giving up the small pickup market to its two top rivals: Toyota Motor (TM 1.70%) and General Motors (GM 1.70%). Toyota offers the Tacoma in the midsize truck segment, and GM is planning to reintroduce the Chevy Colorado midsize truck (and its close cousin, the GMC Canyon) next year.

Yet Ford's management probably made the right decision by ending Ranger sales in North America. The truck certainly has its fans, since it gets better gas mileage and is easier to maneuver in the city compared with its larger sibling, the Ford F-150. However, demand for small trucks is fading fast in the United States. Ford has taken the calculated risk of killing the Ranger in the U.S., with the goal of moving former Ranger owners up to the F-150 (or over to cars/crossovers). Furthermore, Ford's Atlas concept for the next-generation F-150 promises to dramatically boost fuel efficiency. If it meets expectations, it will give customers the best of both worlds in one powerful but fuel-efficient truck.

Killing the Ranger
While the Ford Ranger was sold in the U.S. for three decades, Ford decided to discontinue it a few years ago. The 2011 model year represented the last full production run; the 2012 Ranger was only available for fleet buyers. Ford's market research showed that many Ranger buyers were looking for a cheap vehicle but didn't need a pickup specifically. With a stronger lineup of small cars, Ford thinks it can keep those buyers. Among customers looking specifically for a pickup, Ford believes it can sell the F-150 to most of those buyers. This is especially true because the new Ranger sold in international markets is larger than previous models, at 90% of the F-150's size.

All-New Ford Ranger

The New Ford Ranger, courtesy of Ford.

While it's unfortunate for Ranger fans that the model is no longer available in the U.S., there are big benefits for Ford from slimming down its product lineup. The F-150 is the top-selling vehicle in America, which gives Ford huge economies of scale in its production. By contrast, the small truck segment is small and shrinking. Furthermore, the F-150 commands much higher prices than the Ranger ever did. Industry analysts have estimated that large pickups command an average profit of $12,000 per vehicle. Even if would-be Ranger buyers purchase less expensive F-150s, Ford only needs to persuade a small proportion of them to upgrade to the F-150 to fully offset lost profits from the Ranger.

Good decision?
The Ranger ended production in December 2011, and so far market dynamics imply that Ford made the right call. In 2012, Ford sold 19,366 Rangers in the U.S., down from 70,832 Rangers sold in 2011 (the model's last full year on the market). The segment-leading Toyota Tacoma grew from 110,705 units in 2011 to 141,365 units in 2012: a gain of just over 30,000. Meanwhile, GM's Chevy Colorado and GMC Canyon trucks saw combined sales increase from 40,616 in 2011 to 45,575 in 2012. GM's sales could have been somewhat higher, but dealers began to run short of inventory in the fall, since the 2013 models aren't available in the United States. Nissan's sales of the Frontier small truck were also unimpressive in 2012, growing just 7% to 55,435 units.

The bottom line is that while the overall pickup market showed a solid increase in 2012, small pickup sales gains at Toyota, GM, and Nissan totaled only 40,000, even though Ford Ranger sales declined by more than 50,000. By contrast, U.S. sales of F-Series trucks grew by around 60,000 units last year, from 585,000 to 645,000. 2013 is off to an even better start, as F-Series sales have grown more than 17% year to date.

There is no way to know for sure what buyers would have done if the Ford Ranger had been on the market. However, the evidence suggests that Ford's strategy is working. The full-size pickup segment is rebounding nicely, while compact pickup sales are still on the decline. Some would-be Ranger buyers undoubtedly bought the Toyota Tacoma instead. However, F-Series sales growth of 60,000 units in 2012 was approximately double the growth of Tacoma sales. It seems quite likely that the step-up of some would-be Ranger buyers to the F-150 is partially responsible for the strong growth of F-Series sales recently.

Foolish conclusion
Managing a massive global company like Ford entails making tough decisions. Discontinuing the Ranger for the U.S. market was one of those tough decisions. However, so far it looks like the right move. The American pickup market is moving strongly toward the full-size segment, which offers automakers much higher volumes and profits. With gas prices trending lower, buyers have one less reason to trade down from a full-size pickup to a compact or mid-size truck. Lastly, if Ford's Atlas concept dramatically improves F-Series fuel economy, it will push small trucks into an even smaller niche. Alan Mulally and his team at Ford have made a lot of good moves in the last few years, and there's no reason to believe they slipped up now.

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
$12.83 (2.64%) $0.33
Toyota Motor Corporation Stock Quote
Toyota Motor Corporation
$161.35 (1.70%) $2.69
General Motors Company Stock Quote
General Motors Company
$36.00 (1.70%) $0.60

*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 service.

Stock Advisor Returns
S&P 500 Returns

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 05/24/2022.

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.