Op-Ed: Why Is a ‘Green’ Car Company Pivoting Back to S.U.V.s?

Source: By Jamie Lincoln Kitman, New York Times • Posted: Thursday, May 3, 2018

Cristina Spanò

Two years ago, the Ford Motor Company boasted about having been named Interbrand’s Best Global Green Brand and said it was committed to working to meet stricter fuel economy standards. Last week, after lobbying with the rest of the industry to strike down those standards, Ford announced that it would largely abandon the American passenger car market in favor of building more trucks, crossovers and S.U.V.s.

Ford’s announcement marks a significant turning point for the American auto industry. The only heritage United States carmaker that didn’t go bankrupt in the Great Recession of 2008, it had become one of its greenest. But its decade’s worth of investment in developing more fuel-efficient cars is now taking a back seat to profit.

To be sure, today’s crossovers and S.U.V.s are safer, cleaner and more fuel-efficient than their predecessors. But they’re still no real match for passenger cars — sedans, hatchbacks and wagons — when it comes to fuel economy and reduced emissions. High-riding S.U.V.s resist the wind more, which decreases economy (and hurts handling), as does the additional weight of these big-tired behemoths.

Ford received a $5.9 billion loan from the Department of Energy in 2009 to build more fuel-efficient vehicles. And indeed, it developed several internal combustion engines with notably reduced thirst for gasoline. Within a few years, it had a fine full line of passenger cars. The company was well positioned for a greener future. But something changed.

Automakers have spent billions in the past decade to improve gas mileage, and while Ford will add more hybrid and pure electric vehicles to the market, it now plans to pack pounds back on. “By 2020, almost 90 percent of the Ford portfolio in North America will be trucks, utilities and commercial vehicles,” Ford announced. It plans to keep in production the relatively low-volume Mustang, a sporty car that sells for higher prices than ordinary sedans, and a forthcoming rugged variation on its Focus hatchback.

So what changed? The return of cheap gas, for one thing. It makes larger, less fuel-efficient vehicles affordable again to many consumers. American carmakers spent the years around their great bailout professing their ardor for a new generation of fuel-efficient vehicles, but in the end they were only too happy to steer people back into S.U.V.s, which are more profitable.

Call it the S.U.V. Profit Paradigm: Added height elevates the price people are prepared to pay for what is essentially the same vehicle. S.U.V.s and crossovers sell at higher prices than cars of equivalent size, but they cost little, if anything, more to build.

The unwillingness of Congress to tax gasoline more heavily did not help. Nor did the readiness of the Obama administration to accommodate so much of Detroit’s pro-S.U.V. agenda in its regulations. Though they did raise federal mileage standards, the rule makers rewarded companies that built bigger vehicles by setting standards matched to vehicle size, with large cars allowed to burn more gas and pollute more. And now the Trump administration is moving to reduce even those standards.

Even in times of robust, S.U.V.-fueled profit, carmakers have not seen their share prices rise much, especially compared with the tech companies that may, in the era of self-driving cars, become their competitors. Last October, Ford proclaimed it would cut its future spending by $14 billion. Its stock did nothing. Last week, it announced it would trim an additional $11 billion. “We’re going to feed the healthy parts of our business,” Ford’s chief executive, Jim Hackett, told analysts, “and deal decisively with the parts that destroy value.”

It’s a stunning moment: The head of a great American car company is calling the great American family sedan a value destroyer and walking away from 35 percent of the vehicle-buying population and hundreds of thousands of passenger car sales a year.

What’s more, the move effectively cedes the passenger car market in North America to competitors old (Japanese, Korean) and new (Chinese).

Ford’s race to the bottom is consistent with G.M.’s recent decision to sell its German Opel division, virtually quitting Europe and, with it, its most advanced small-car development operation. Fiat Chrysler, too, announced the cancellation of its small- and medium-size car lines in the United States in 2016.

American carmakers have been trying to impress the market with radical short-term surgeries. Whatever the momentary boost to share prices, the decision to go all out for S.U.V.s poses a long-term risk: Ford will be much more susceptible to the ill effects of rising oil prices. One severe oil price spike could send consumers back to passenger cars, the ones Ford is no longer making.

High oil prices, at least, Ford understands. Autonomous cars and ride sharing, on the other hand, could spell the end of business as Ford knows it. So while American automakers are preparing, or at least thinking of preparing, for the world of tomorrow, they are also trying to make as much money as they can as fast as they can. They don’t know what this future will be, and they’re kind of afraid of it, but they sure hope it includes S.U.V.s.☐