Ford has announced plans to move out of the car industry. Although Ford currently plans to maintain its production of the Mustang and the Focus Active, which is a hatchback more like a SUV than a car or a modern-day version of a station wagon, sedans will no longer be a staple of the Ford brand. Instead, Ford will be a truck company. It will focus on trucks and commercial vehicles. Like the history of Ford, the future of Ford mirrors that of the US economy. It was Henry Ford and his groundbreaking five-dollar-a-day wage that helped launch the Middle Class, whether Henry’s motivation was an altruistic attempt to turn employees into consumers or a means to lower costly turnover rates is debatable. Ford was then, of course, part of the Labor Movement, even though it was often on the opposite side of its workers. Finally, Ford became a symbol of the crescendoing struggles faced by all American manufacturers, Americans workers, and the US economy.
Not only has Ford and its workers struggled with rising prices and globalized competition, it has had to keep pace with technological and societal changes. Ford and its contemporaries have not fared well against increased foreign competition from the likes of Toyota and Volkswagen. Some of it has to do with the competitive edge foreign countries with lower production costs often enjoy and some of it has to with the inefficiencies of American production practices. Autoworkers within the “Big Three” have also prevented their employers from embracing the same pay practices as their competitors. Ford’s history shows a large company can both reshape the pay practices of industries for the betterment of workers as well as suffer when competitors are not obliged to match pay rates and benefits. Another major factor in Ford’s successes and failures come from the quality of its cars and the economic viability of its cars throughout its history.
When Ford makes terrible cars, it will always face a period of decline or even failure. Ford, GM, and Chrysler have make a lot of crappy cars over the decades that were designed to be replaced. It is what they did in the 2000s. In the wake of the Great Recession, a bailout from the US government, which was done to preserve the jobs of American auto workers, gave the Big Three a big opportunity to transform themselves and their industry. In some ways, they have capitalized on that opportunity to innovate. In other ways, they are falling into the same old patterns that have continually threatened their existence throughout their histories. They are also undercutting the American People by undermining the affordability of cars. Unfortunately, Americans are buying fewer cars from Ford, because they are really expensive and they are not built to last.
A successful company is only successful, because it is able to provide for the needs, not necessary the wants, of its customers. Only by changing along with the changing needs of customers can successful businesses remain successful. Relative to rising costs and the growing number of expenses faced by Americans, incomes in the US have grown too slow. Even if car prices have been somewhat suppressed when compared to other products, most Americans cannot afford a brand new car. They certainly cannot afford a brand new car every few years. The only reason cars have remained a viable commodity and modern convenience-necessity is due to the existence of a secondary market. Unfortunately for Ford, the car manufacturing company, it does not make money on the resale of cars, which creates a couple of problems.
One, the lack of a direct connection to Ford’s profits and the secondary car market encourages Ford to ignore the need for a secondary market. Ford is, essentially, encouraged to embrace a false belief that there is no incentive to ensure the longevity of cars. This, in turn, forces consumers in the primary and secondary markets to spend more on trying to maintain their cards and replacing them more often. Two, this mentality also encourages Ford to cater to and cultivate consumer preferences that ignore the long-term consequences of Ford’s decision. Ford does not simply respond to consumer demands. It shapes them by telling them what options they can have. Because Ford makes more money with bigger vehicles, Ford has an incentive to push larger vehicles, which it does.
It is, of course, important to recognize preferential trade policies have also contributed to the competitiveness of American trucks, but not cars, thus the economic environment further favors the sale of larger vehicles to primary consumers. Unfortunately, SUVs and trucks cost more than cars. Trucks came into existence, because they had a purpose. They were economically viable, even though they are naturally more expensive than cars, because they helped people do work, i.e. they generated money. The reason cars came into existence is that people needed transportation, thus they could only exist, because they were relatively inexpensive. Today, fundamental economics has nothing or little to do with Ford’s product line. Primary consumer tastes and Ford’s profit margin is what drives Ford’s product lines. These things, of course, matter, but the fundamentals have to be viable. They are not. To make matters worse, many of Ford’s car models suffer from habitual quality issues.
Ford cannot sell cars, because its consumer-choice, non-economic model is impractical. Even if Ford was a luxury brand, its survival would still require higher quality cars with longer durability and greater reliability. Ford will struggle even as it transitions to currently more profitable product lines, because Ford is trying to appeal to the highly varied, shifting tastes of a narrowing consumer base instead of working on the long-term economic viability of its products. Should Ford ever have to face real competition in the truck and commercial market, it will start to falter. Ford will never make as much on more durable and/or smaller vehicles, even if it perfects the models. In the broader picture, however, more durable and smaller vehicles are needed to maintain the viability of the auto market. As an analogy, Ford’s struggle to remake itself, along with its failure to do it over and over against, is the same struggle all American manufactures and other businesses face for the same reasons.
Read old posts