Why Ford Is Right In Choosing Not To Reboot This Mid-Size Truck For The U.S. Auto Market

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Ford Motors (NYSE:F) is choosing to sit out the recent revival of the mid-size truck segment in the U.S. auto market. In the last couple of years, perceptions of the mid-size truck segment have changed significantly. While the full-size truck segment has recovered from the brief dip during the recession and grown in volume from 1 million units a year in 2009, to close to 2 million in 2014, the mid-size truck segment hasn’t even come close to selling half a million units for half a decade. In fact, unit sales of mid-size trucks have been falling year-on-year since 2011. Even in its best years, the mid-size truck segment has only sold one-third as many units as the full-size truck segment in the last decade and a half. But recently, General Motors has launched two new mid-size trucks (Chevrolet Colorado and GMC Canyon), Toyota has redesigned the Tacoma, and now Nissan and Mercedes-Benz have decided to enter into a partnership to jointly design their own mid-size pickup by 2020. [1]

However, Ford is choosing not to reboot its own mid-size truck, Ranger, for the U.S. auto market. Ford’s decision is based on two parameters: 1) the Ranger is too big compared to the F-150 to sell in the U.S. and 2) the economics of  making a mid-size truck palatable to U.S. consumer tastes is just not feasible for Ford.

We have a $14  price estimate for Ford, which is slightly lower than the current market price.

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High Cost

Another company which is choosing to sit out the mid-size truck revival is Fiat Chrysler. The U.S. based auto maker has decided not to relaunch the Dodge Dakota for the U.S. market. [2] According to the leader of the Dodge brand Bob Hegbloom, it’s just too costly to make a mid-size truck that would be good enough to make consumers want to buy one. Hegblooms’s reasoning runs as follows: mid-size pickups need to be considerably different in size (smaller) than full-size pickups as they target a different demographic. Not only do they have to be smaller, they also have to be much less expensive, while also providing a fuel economy that is competitive with full-size pickups even as they compromise on capability. GM’s Chevrolet Colorado delivers on some of these features: it is nearly half a foot narrower than the full-size Silverado and nearly 15 inches shorter. It is also roughly $7,000 cheaper. Even so, it loses out on grounds of fuel-economy. As full-size trucks have improved considerably on grounds of fuel economy, a mid-size pickup would have to offer a mileage upwards of 35 miles per gallon on the highway in order to be attractive to customers. The Colorado delivers only 27 MPG. [3]

Ford Ranger Is Too Big

The Problem Ford faces with bringing the global Ranger to the U.S. auto market is that it is too big in size. It is hard to see why consumers will buy a Ranger when the F-150 is available. The two vehicles are quite close in fuel economy and price. Essentially, the target customers of mid-size trucks want compact trucks. They prefer their smaller size and maneuverability. This is the reason why Toyota’s compact truck Tacoma outsold the Ranger when it was last on the U.S. auto market. Another potential customer for compact trucks is Small Business. Small businesses generally lease or buy 100’s or 1,000’s of compact trucks at a time. However, at prices comparable to full-size trucks and with no significant advantages in fuel economy, it does not make sense for them to shell out for something like a Ford Ranger. They’d be much better off going for something like a Toyota Tacoma or a Chevrolet Colorado or even a base-level F-150 truck. This kind of awkward market segmentation makes it difficult for Ford to be able to make any serious profits with the Ranger. Consequently, it does not make sense for Ford to bring the global Ranger model to the U.S.

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Notes:
  1. April 2015 Midsize Truck Sales In America – Segment Jumps 48%, GoodCarBadCar, May 2015 []
  2. Mid-size Ram pickup? Too costly, brand boss says, Auto News, May 2015 []
  3. Ref: 2 []