No one can be certain of the future, but Ford Motor Co. is pretty confident that it made the right call.
One year ago, as the company reported its earnings for the first quarter of 2018, Ford shocked consumers, investors and dealers with what seemed like an abrupt announcement: The iconic company famous for making affordable cars available to the masses actually planned to stop making sedans.
Now Ford officials are looking at sales trends with joy and relief.
"The migration out of passenger cars into SUVs has accelerated," Mark LaNeve, vice president, U.S. Marketing, Sales and Service at Ford, told the Free Press. "It's breathtaking. It's a generational shift. At Ford, we believe it's structural, or otherwise permanent. It won't bounce back with an oil shock."
He added, "I don't know what the bottom is. Because they're so important to the Asian brands, you will get some sustaining level."
Passenger car sales - "anything with a trunk," LaNeve says - have steadily declined since 2012 from 49 percent of U.S. sales to just 30 percent in 2018. The first three months of 2019 show the free fall continues.
Ford reported its earnings for the first quarter of 2019 Thursday, with its profitability driven by F-Series pickup trucks and SUV sales in North America
The company said its first-quarter earnings before interest and taxes - adjusted EBIT - was $2.4 billion, up from $2.2 billion in the first quarter of 2018. Net income, after taxes and other charges, was $1.1 billion, down from $1.7 billion in the same quarter last year.
Overall, the automaker exceeded expectations set by Wall Street.
CFO Bob Shanks reiterated that the company would absorb billions of dollars in costs over the next three years as the company restructures globally, but the U.S. market and Ford Credit continue to provide consistent profitability.
"It's a very, very encouraging start for us," Shanks said.
Ford slightly increased its U.S. market share and lost share in the rest of the world. The company's revenue was $40.3 billion, which is down 4 percent - related to discontinuing the Ford Focus in North America, ramping up all-new Explorer production and industry decline in Turkey.
SUVs continue rolling
Sport utility vehicle sales jumped from 36 percent to 52 percent of all U.S. vehicle sales from 2012-18, while truck sales have grown steadily from 14 percent to 19 percent. The trends continue unabated.
"Years ago, when you shifted from a car into an SUV, you had to make trade-offs on fuel economy, ride quality, technology," LaNeve said. "Now with the SUVs we currently build, you don't have to make the trade-offs. We've invented a better mousetrap. My wife, the No. 1 thing with her is visibility. She wants to be able to see. And a heated steering wheel. She likes the command seating position.
"Are there some die-hard sedan customers we may lose? We're hoping to minimize it," LaNeve said. "We'll play to our strengths. We'll take every opportunity to introduce them to Ecosport and Escape (compact SUVs). And we'll use capital we've allocated to sedans. That's the tradeoff we're making. We'll put money where the growth is occurring rather than declining."
What about drivers of the Ford Fiesta, Ford Focus, Ford Fusion? They'll switch to other Ford products, LaNeve predicted.
Fiat Chrysler "made the decision a long time ago," he noted, adding that Chevrolet and Buick have dramatically reduced their sedan offerings, too.
The only passenger car Ford will retain is the globally popular Ford Mustang.
Small cars offer 'sanctuary'
Still, industry observers watch with caution.
"The shift to SUVs makes sense given their market demand and profitability. They are simply a better investment right now," said Karl Brauer, executive publisher of Kelley Blue Book. "What's less clear is the long-term impact of this decision. The domestic automakers have walked away from sedans in favor of large trucks and SUVs before.
"It happened in the early 2000s, and it looked like the smart way to go back then, too. Then fuel prices spiked in the late 2000s, followed by a recession, driving consumers out of SUVs and into small cars to counter their fuel-bill concerns. The import brands cashed in on this trend while the domestics lost sales and market share."
History repeating itself is unlikely because of strides made in fuel economy, he said.
"Of course that assumes a purely rational approach," Brauer said. "If fuel prices hit $5-plus a gallon, rational thought will likely go out the window as history repeats itself. In that scenario the domestic automakers will once again be caught flat-footed as shoppers rush to the sanctuary of small, fuel-efficient cars - offered by import brands."