Ford Focuses on Small Car Segment for Future Growth

Addressing journalists at a recent forum on automotive buying habits, Ford Motor Company’s manager of sales analysis George Pipas said the trend is toward smaller vehicles. “What’s taking place,” Pipas said, “is a compromise between want and need. Our view is that small is going to continue to grow and small is going to be more expensive.”

Pipas said that the small-car sector has grown from around 14% of the overall market in 2004 to around 21.6% of the market in 2009. The small-car sector, known in the industry as the C-segment, includes the Honda Civic, Toyota Corolla and Yaris and Nissan Versa and Sentra among others.

Pipas cited the volatility of gas prices as the driving force behind the migration of consumers to C-segment vehicles. He said that the pump price rose from a nationwide average of $1.49 per gallon in 2000 to $1.85 per gallon in 2004. In 2008, the price per gallon skyrocketed to $3.25, then dropped to $2.20 per gallon, but has risen in recent months.

Although gas prices have influenced the 50% increase in C-segment car sales in the last five years, Pipas also cites changes in the SUV sector as another factor. Of the top 10 best-selling utility vehicles on the roads in 2000, Pipas said, nine were truck-based. The Honda CR-V, he said, was the only crossover utility vehicle on the market.

Since then, he said, the market has changed dramatically. Today, the Honda CR-V is the top selling utility vehicle while the once-popular Ford Explorer has completely dropped out of the top-10 list of best-selling utility vehicles. He said nine of the top-10 are crossovers and only the Jeep Wrangler, at seventh place, is truck-based.

According to Pipas, the small car segment has accounted for 21.6% of all auto sales in 2009. Crossovers have accounted for 21.2%, while mid-size cars have fallen to 16.2%. Pickup sales have accounted for 13.1% of all U.S. sales, while luxury vehicles have fallen to 7.2%, followed by SUVs, large cars and minivans at 6.4%, 5.3% and 4% respectively.

He told the audience that the hottest demographic in the auto industry is those born between 1979 and 1994. The “Millenial” demographic, as he termed it, makes up about 27% of the driving-age population of the U.S. and accounts for approximately 11% of all new vehicle sales. “If you want to survive, you have to connect with this group,” he said.

Pipas said that nearly 50% of these first-time vehicle buyers are choosing small cars but noted, “They are willing to do without some things so that the things they do acquire have content.” In other words, they want more than plain vanilla, entry-level cars.

The focus on Mellinials, however, does not mean that automakers are neglecting the all-important “Baby Boomer” demographic. Pipas said that Boomers make up about 46% of new-vehicle buyers and that the vast majority of them are “downsizing, streamlining and simplifying.”

He said that Ford plans to produce around 2 million small cars annually by 2012 and that up to 10 models will share the C-segment platform. To compete with the Honda Accord and Toyota Camry, Ford plans to produce 1 million B-Class mid-size cars.

Pipas also noted that the Ford Fiesta and newly redesigned Focus will go on sale in the U.S. in 2010. The Fiesta, he said, has already sold over 500,000 in European markets.

In 2011, Ford plans to launch its new C-Max small minivan in the U.S. The C-Max also shares the Focus platform.

Although Ford plans to expand its alternative-fuel offerings, the company does not believe that diesel powered vehicles will catch on in the U.S. the way they have in other markets, including Europe.

Pipas said, “Our volume product is EcoBoost, the family of direct-injection, turbocharged gasoline engines. We believe we can provide a bigger impact by getting more out of the internal-combustion engine.”

“We believe the era of excess has reached the tipping point,” he concluded. “People are moving from conspicuous consumption to careful consumption.”

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