How the Bronco Will Affect Ford's Sales

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The Bronco was discontinued in 1996, but recently Ford (NYSE: F) announced a new line of Broncos that are set to come out in 2020 -- and consumers are excited.

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In this segment from Industry Focus: Industrials, analyst Sarah Priestley and senior auto specialist John Rosevear discuss how this will affect Ford's bottom line, and competitors like Fiat Chrysler; how well trucks and midsize pickups are selling in the U.S. and overseas; where the Bronco fits into Ford's overall strategy; how this new SUV will compare to products like the F-150; and more.

A full transcript follows the video.

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This video was recorded on Sept. 21, 2017.

Sarah Priestley: And outside of the compact crossover, more toward the bigger SUVs, I think it's going to be interesting for investors to watch what the Bronco might do for Ford. I think it's anticipated to launch in 2020. It was discontinued in 1996. The marketing says it's going to be back and better than ever. We'll see. I think, for me, I'm going to be looking at, what is this going to do for Fiat Chrysler? Because it's certainly going to be a competitor for Jeep, especially as there's a rumored premium off-road version. So, what do you think?

John Rosevear: The Bronco relates into another story, which is that for years, Ford sold a one size down pick up. Ford's bread and butter is the F-150, the F series, the F-150 and those Super Duty siblings, the big pickups. It's America's best-selling vehicle line. They're everywhere. If you live in America, you've seen an F-150 in the last couple days. They're just everywhere. Ford makes a ton of money off of them. For years, they sold a one size down pickup called the Ranger. The Ranger was discontinued in the United States because they closed the factory that made it, which was in St. Paul, Minnesota, in I think the end of 2009 or thereabouts. It was one of the things they did after the economic crisis to ratchet down costs, because they felt like most of those buyers were likely to select F-150s instead because they had just revised the F-150, and so on. Ford launched an all-new Ranger overseas. It was designed in Australia and it sold in some parts of the world as a commercial vehicle, and in other parts of the world, like Australia, it's very popular as a 4x4. People who would buy Jeeps here often by Ford Rangers and go rampaging around the outback. Well, Ford hasn't had the Ranger in the U.S. in several years. Meanwhile, GM has launched all-new midsize pickups, the Chevrolet Colorado and GMC Canyon. GM pitched them a little differently. Rather than an inexpensive utilitarian truck, which is what the Ranger was years and years ago, these are somewhat more premium vehicles. They're an alternative to SUVs for young customers who maybe have hobbies in the woods where they're taking dirt bikes into the woods or mountain bikes or whatever, ski equipment, it's sort of the outdoorsy lifestyle vehicle, available in four-wheel drive with good off-road capabilities and so forth, but also with nice interiors, with leather, with a good stereo and stuff that maybe wasn't emphasized before.

And GM is not selling these in the kind of quantities it sells its big trucks in, but it's selling a fair number of them. Maybe 15,000 or 20,000 a month. And they're getting good profits at good margins. This is the market the Toyota Tacoma plays in, as well. That's the other competitor here. Ford says, "We have this factory in Michigan where we build the Focus, the Compact, and the C-Max," which is their hybrid. "Sales are declining, these aren't that profitable, let's move production of these out of the United States, and instead, let's use that factory and build the Ranger at that factory." And then they said, "Let's keep that factory busy, let's design a brawny, off-road SUV based on the Ranger's chassis to go with it. What do we call it?" This was probably a two second discussion. "We call it Bronco, of course." This is going to come back, I think it's going to be a niche product. I think it's going to be Ford's take on the general idea of the Jeep Wrangler, which is what the original Bronco was way back in the 1960s. It's not going to sell 30,000 a month like the RAV4, CR-V does, or even 25,000 a month like something like the Escape does. It's a niche product. It will help keep that factory at full potential. They'll probably have two shifts on for a while producing Rangers and Broncos. It will flesh out their offerings. It's an easy product for them to do because it's based on the architecture of the Ranger. They'll do it with dramatic styling, it'll improve their image they'll sell it at fat profit margins, people will love it. [laughs] I mean, I really think this is the way this is going to go. Will it make a huge dent in Jeep sales? Probably not. I think a lot of this will be incremental sales. This will be people who might have bought a Ford pickup who say, "I want that instead." Or, people who have a Ford pickup for work and want a weekend vehicle, and maybe they would have bought a Mustang once upon a time, and now they buy something like the Bronco instead.

Priestley: Yeah, I know a few people who are really factoring the Bronco into their bull thesis on Ford as a reason for a buy. But, from what you're saying, you think it's overblown, the anticipation is a little too much. It's not going to be that accretive.

Rosevear: I don't think it's going to double Ford's profits or anything. I think it will be a successful product. I think it will meet or exceed Ford's goals for it. I think it will be very profitable. If you are expecting F-150 numbers on the Bronco, you're going to be sadly disappointed, it's just not going to be that kind of product. Look at what Jeep sells with the Wrangler, and figure some percentage of that. I think that's 15,000 or 18,000 a month, somewhere in that neighborhood. A good, solid, profitable vehicle. You'll see them out on the roads. But it's not going to transform Ford's North American business by itself. On the other hand, it will be good for a lot of attention, a lot of brand building, a lot of media play. And Ford likes that, and that helps them indirectly.

John Rosevear owns shares of Ford and GM. Sarah Priestley has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Ford. The Motley Fool has a disclosure policy.