In the 1990s, Ford's (NYSE:F) Explorer, along with other SUVs, were best-sellers in the U.S. market. Their popularity led to massive profits for Ford and General Motors (NYSE:GM), but they also led to short-sighted decisions by managers who assumed we would always buy gas-guzzling road hogs. That's when things began to go downhill, and quickly.
By ignoring the growing trends of consumers who were downsizing to smaller vehicles and wanting improved gas mileage as fuel prices increased, Detroit automakers ran their businesses into the ground. Those poor decisions culminated in bankruptcies by GM and Chrysler, while Ford escaped by restructuring on the back of its own private loans. Fast-forward to today, and the SUV is a different beast and is beginning to sell again. The more important question for Ford is, can it sell overseas?
Why it's important
Ford has been banking on the success of its global platforms. In the past, the company produced bulky and inefficient vehicles that barely sold in the U.S. and never sold in Europe. If Ford is going to break even in Europe by mid-decade, as management has planned, it needs the Escape to be popular in Europe.
Many countries in Europe still have 20% unemployment, and automotive sales are expected to stay stagnant for a few years on the continent. However, there's one segment that has grown in Europe since 2005, according to IHS automotive -- SUVs.
Ford is upping its production of the Kuga (the nameplate for the Escape in most of the world) in Europe to record numbers and is refusing to dish out cash incentives, which severely hindered the company's profits during the U.S. economic crisis.
Here's a look at how Ford's utilities/crossovers have done here in the U.S. market recently.
It's clearly led by the Escape, whose success is expected to translate overseas and make Ford profitable in China and Europe, but the Explorer is also making a comeback. Here's another look at how much of a comeback the Explorer has made.
Americans have always loved huge rides that sit above traffic and the sense of security gained by driving a massive tank-like vehicle. The only reason those vehicles faded in popularity was the love of something greater -- the green inside our wallets that disappeared at the pump. The breakthrough in fuel efficiency has given SUVs a revival, one that isn't likely to let up -- or at least that's what Ford is banking on.
According to Erich Merkle, Ford's sales analyst, who spoke to reporters Wednesday, Ford's EcoSport SUV will be sold in more than 60 countries in four years. That's a drastic improvement from the 10 countries it's sold in now. The Edge will be sold in 40 markets, compared with 16 last year. The most important change could very well be the beginning of sales of the Escape in China this year.
Ford is investing heavily in China because by 2020 it's expected to increase its automotive sales by 12 million vehicles -- the size of Europe's entire market today. Thus far, the Escape previews have drawn largely positive reviews from the Chinese consumers -- and Ford can't wait to see sales results.
This isn't all about SUVs as much as it's about hitting each region's growing future trends. While the Chinese are excited by the smaller SUVs that the Escape represents, the U.S. consumer is equally excited about full-size trucks. Europe tends to focus on smaller, efficient automobiles, and Ford is able to appease every market within its global platform of vehicles. This is a huge step for Ford, which derives nearly all of its profits from North America. Expect that to change soon, much to delight of long-term Ford investors.
Fool contributor Daniel Miller owns shares of Ford and General Motors. The Motley Fool recommends Ford and General Motors and owns shares of Ford. Try any of our Foolish newsletter services free for 30 days. We Fools don't 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.