Ford Bets Small-Vehicle Trend Is Here to Stay

NEW YORK – Ford is betting that small vehicles like the Ford Fiesta will continue to increase their share of U.S. auto sales, even after the economy improves, and even if gas prices stay moderate.

“We are placing a pretty big bet with regard to our portfolio of products in the United States,” said George Pipas, U.S. sales analyst for Ford.

The risk is that Americans will lose interest in small cars when the economy recovers and if gas prices stay low.  My opinion is that Americans are now interested in small cars out of economic necessity, and not out of any lasting change of heart.

Ford is betting on the latter. Separately, market research firm DYG Inc. recently expressed a similar opinion, that U.S. consumers will stay in a recessionary mindset long after the recession is over.

Ford’s answer to increased demand for small cars is to add small vehicles designed in Europe to the U.S. lineup, like new generations of the Ford Focus and the Ford Fiesta, even though historically, success for a car in Europe is no guarantee of success in the United States.

Pipas said that small vehicles, including small cars and crossovers based on small cars, have already grown from 21 percent of the U.S. market overall in 2003 to 31 percent in 2008. By 2013, Ford expects small vehicles to make up 36 percent of the market, he said.

U.S. demographics are the biggest reason for the increase, ahead of gas prices and ahead of the economy, although of course those play a role, Pipas said.

Specifically, Baby Boomers and so-called Millennials, also known as Gen Y, are the source of growing demand for small vehicles, according to a Ford presentation here today.

“The small-car segment probably has the most bi-modal distribution. It’s like a camel,” with two “humps” based on age, Pipas said.

The older set is made up of Baby Boomers who are becoming empty-nesters. “The Boomers have basically driven every big (automotive) segment trend … since they formed households. They drove minivans in the 1980s, and SUVs in the 1990s … As they retire, they downsize. They don’t need vehicles as big as when they had a houseful of children,” he said.

The other “hump” consists of Millennials, who according to Ford were born between 1979 and 1994. They already account for 27 percent of the driving-age population, but only 11 percent of new-vehicle sales, Pipas said. However, that new-car number is growing, and roughly half of first-time buyers go to small-vehicle segments, he said.

“If you want to survive, you’ve got to connect with this group, which is not something we’ve been all that successful with,” Pipas said. Connecting with younger buyers is something Ford plans to change.

Chart: Ford, Bnet Autos