The Death of the Model T

Ford Motor Company this week announced it was getting out of the car business (aside from the Mustang and Focus Active), in order to concentrate efforts on trucks and SUVs. As a professor of finance, I understand the logic. The value of any company is the future value of its cash flows. Trucks provide huge profits for manufacturers. Ford's stock performance, unlike the market as a whole, has destroyed investor value. Since 2015, Ford stock is down nearly 25% while the S&P 500, Dow, and NASDAQ soared to record highs. Just ask Mark Fields, the former CEO of Ford how important stock price is for a company.

As a professor of Automotive Dealership Management, I question the logic of ceding the car business to the likes of Toyota, Honda, and others. This strategy is not new. Ford has utilized it on other occasions, often with poor long-term results. History repeats iteslf in similiar ways and new ways. Here is the history lesson Ford may be missing.

First, trucks and SUVs are gas guzzlers. Even today, with new technologies they still lack the fuel efficiency of smaller cars. Gas prices and CAFE standards will rise. Without a stable of fuel efficient vehicles, Ford will be at a disadvantage (just like they have been in the past with gas price spikes). Second, the US is not the only market in the world. The European and Chinese markets represent a large overall piece of the automotive pie. Can Ford be relevant globally without a car prescence? Taking this logic a step further, with the dawn of autonomous vehicles and car sharing, the Amercian market, especially in large cities, may see a swith to smaller more efficient vehicles. Finally, cars represent an entry point into a brand. Will younger, first-time buyers even have Ford on their radar or will these buyers flock to Toyota Corolla or Honda Civic early and then remain loyal to these brands for trucks and SUVs down the road?

It is an interesting dilemma for Ford. Short-term profits and stock price manipulation today or long-term thinking at the cost of stock price today. Yes, you can build a car people want. Just look at the number of deposits for the new small Tesla. Ford, with its years of manufacturing capability, probably would not be suffering the same production headaches that Tesla is today. Give the people a car wothy of Ford's herigage, style, safety, efficiency, power, and value. This sells yesterday, today, and tomorrow.