OEMs May Feel Pressure to Follow Ford’s Sedan Phase-Out

DALLAS — Ford Motor Co. is eliminating all but its Mustang brand of new sedans because of faltering consumer demand and impending fuel efficiency regulations, and residual value analysts predict other OEMs could be pressured to follow suit.

“Everyone can see the trend that customers are currently buying SUVs,” Eric Ibara, director of residual value consulting at Kelley Blue Book, told attendees at Auto Finance Performance and Compliance Summit 2018. “To the extent [manufacturers] can pull back their production and still be viable, they will do that. To the extent [OEMs] pull back and the plant is no longer viable, it will force them to pull out.”

He noted that Ford can always import smaller cars from overseas — where demand is still high — if U.S. consumer preferences change.

Additionally, fuel efficiency for crossovers has substantially increased since the last time gas prices spiked, which may be changing the calculation for OEMs to continue their car lines. For example, the Ford Fusion currently supports 26 mpg, but by 2025 will be required to run on 55 mpg, said Anil Goyal, executive vice president of operations at Black Book’s National Auto Research. By comparison, a Ford Escape crossover has a nearly identical miles-per-gallon rating but is only expected to support 47 mpg by 2025.

“You can see how these cars add more and more costs, and how it makes sense for them to change, drop the line, or turn it into an electric,” Goyal said. Extra tax credits or manufacturer incentives could be added to offset the higher cost of improved fuel efficiency, but those could further erode the used-car market, said Morgan Hansen, senior director of data science at ALG.

“We all want 50-mpg cars,” he said. “But we’re not all willing to pay an extra $10,000 for them.”