Ford announced on Wednesday that it will stop selling sedans in North America, saying the Mustang and a new crossover will be the only survivors in a reduced lineup of passenger cars.
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The Dearborn-based automaker, which reported better first-quarter earnings and revenue than expected, said it will transition to a truck- and SUV-focused lineup over the next few years as a result of declining consumer demand for small cars. The segment also generates weaker profit margins for manufacturers.
The revamped Ford car portfolio in North America, the company’s largest market, will be comprised of the Mustang sports coupe and Focus Active, a crossover scheduled to launch next year. Ford’s current lineup of passenger cars includes the Fiesta, Focus, Fusion and Taurus sedans.
The company didn’t share any new details about the model lineup at its luxury brand, Lincoln.
“The key to success is focusing on where your customers are and where your strengths lie, and for Ford doubling down on trucks and SUVs could be just what the brand needs,” said Jessica Caldwell, executive director of industry analysis for Edmunds. “But this move isn’t without risk: Ford is willingly alienating its car owners and conceding market share in segments that, while declining, are still relevant to some buyers.”
Ford earned net income of $1.74 billion during the first quarter, up from $1.59 billion in the same period a year earlier. Per-share earnings rose three pennies to 43 cents, beating Wall Street’s estimate of 41 cents. Revenue climbed 7% to $41.96 billion, which also beat forecasts for $37.2 billion.
Ford’s bottom line benefited from a lower income tax rate. In an interview on FOX Business’ “After the Bell,” Chief Financial Officer Bob Shanks said Ford held its costs in check, despite an increase in commodity prices.
Ford plans to achieve $25.5 billion in cost cuts and efficiencies by 2022, an increase of $11.5 billion over its prior estimate. It also expects to boost profit margins to 8% by 2020, two years sooner than it previously expected.
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CEO Jim Hackett, who took the reins of the automaker last year, has led an effort to improve its financial “fitness” by cutting costs and shifting resources to profitable trucks and SUVs. Ford recently said it would reallocate $7 billion in cash from cars to SUVs, which are projected to account for half of the U.S. market by 2020.
Ford shares were up 2.6% at $11.40 in after-hours trading Wednesday.