Ford’s $40B Bet: Why Killing Their Sedans Saved the Company

Ford’s $40B Bet: Why Killing Their Sedans Saved the Company

In 2018, Ford made a shocking decision: they killed almost their entire sedan lineup in North America.

The Fiesta.
 The Focus.
 The Fusion.
 The Taurus.

Decades of brand equity — gone overnight.

In this episode of JackQuisitions, Jack Carr breaks down Ford’s strategy and the bigger lesson for business owners:

Sometimes growth doesn’t come from doing more.

Sometimes it comes from cutting what doesn’t make money.

What You’ll Learn

• Why Ford eliminated most of its sedan lineup
 • The massive margin difference between cars and trucks
 • How the 80/20 rule shaped Ford’s strategy
• Why the F-Series became one of the most valuable product lines in America
• The business lesson: growth through focus

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Transcript

 Ford killed almost every car in their lineup, and it was the smartest business decision that they've made in the last 20 years. So, a little bit of quick context. In 2018, Ford announced that it was gonna ax the Ford Fiesta, the Ford Fusion, the Ford Taurus, and the Ford Focus in North America. Only really the Mustang survived.

And the math behind this decision is an absolute masterclass in knowing where your profit actually comes from. And a bit of the 80 20 rule. Ford has been making the tourist since 1986 and they killed 30 years of branding overnight. See, the problem was that the sedan market has razor thin margins. And high competition with margins being around one to $3,000 per car.

Meanwhile, trucks and large SUVs are closer to that $10,000 mark. So if Ford sold you a $23,000 fusion, they might make 1000 to $2,000. But if they sold you a 55,000 Ford F-150 with great branding, they could net almost 10 to $15,000. Ford was fighting against the Hondas and the Toyotas and the Hyundais for all these sedans.

And it was just an absolute race to the bottom on price. And meanwhile. There's a giant consumer shift. There's an overarching theme that's happening where the sedans are actually losing market share. So there was a 25% dip in market share in the last decade alone for smaller sedan style cars. So those two items of giant macro trends of low margins plus decreasing trends.

Meanwhile, Ford is spending billions with a B on factory capabilities and tooling and how to. Handle all these different lines of cars. So what did Ford do instead? They killed it. They killed their sedan market and they doubled down on what was working. So they had a great brand with the F-150, one of the number one trucks on the market.

In terms of sales, I don't care what you say about if you like them or you don't, but in terms of sales, the F-Series is one of the most popular brands and one of the best brands for visibility. Nationwide. So they doubled down on it. They doubled down on the F-Series. They doubled down on the Broncos, the Explorers, and then.

They're commercial transit vans and they reallocated about $7 billion in capital from all these little car platforms into trucks, SUVs, and E EV systems. So they lost this huge transit van push, which is going after commercial fleets. They're going after the plumbers, the electricians, and the HVAC techs.

'cause mind you, this is like 2019 to me, feels like they saw. What the writing on the wall, they saw what was on the horizon of this big boom in this home services industry, and they pivoted a big portion of their business to actually focus on the industry and give those owners what they've been looking for, which was the transit series.

And then you have the Bronco Revival, which they created a $40,000 lifestyle luxury esque. Vehicle that just prints money. It, it was a symbol status. They did a great job on the marketing. The marketing actually ran itself 'cause it was one of the most popular vehicles back in the eighties. And then they, they did the F-150 lightning, which I'm not gonna talk too much about because I don't think that it was hugely successful as probably one of the downsides to this story.

But they tried it. They, they. You know, four out of five on this. Not a bad job. So the math behind this and, and like why it works is because the F-Series alone, like I said, is one of the well-known brands in the US by itself. It is a business line. The F-Series alone generates $40 billion in revenue annually.

This is enough that it would be in the top Fortune 50 as a company by itself. And so that's awesome. Like that's what they focus on. They focus on the, the, the 80 20 rule. They focus on 80% of their values coming from this singular line. Let's double, let's triple down on this. And then they even went so far again to, to do the F series.

And then like we mentioned, the commercial series, their commercial division, which is. The Ford Pro, which has become one of the fastest growing divisions with the highest market market segment here in the last few years, with operating margins being at eight to 12%. Because what do businesses need? Like HVAC and plumbers?

They need trucks, so they're ke keeping that. That high margin value while opening up an entire segmentation of the market that hasn't historically been there, right? Contractors haven't had a huge optionality with the vehicles and vehicles designed just for them. So it was a great move. They kept their eight to 12% margin.

Meanwhile, they got rid of the one to 3% margins for sedans. The math was amazing. And then from an operational standpoint, right, fewer platforms are not focusing on the tourist or the fusion or the focus. They're not focusing on all of these other things that just really aren't making them money. So they're able to consolidate, cut operational costs and focus on what is really making them money.

They stopped trying to be this type of car company and this type of car company and this type of car company and this type of car company. Instead, they focused, they focused on being a really good truck company. They focused on a few luxury brands like the Mustang and the Bronco, and then they focused on their commercial department.

Which has driven the business like crazy in the last few years. So I mean, the lesson here, what can you kill? What product can you kill that will drive your market so much better? Because if you look at it from. A framework. They didn't grow by expanding what they sold. They grow, they grew their business and by actually consolidating and shrinking and cutting.

And so sometimes growth actually means subtraction, not necessarily diluting focus on things that don't drive margin. So off my high horse, the recap for the day is four didn't grow by doing more. They grew by doing less. They cut all of their sedans and low margin with high headache product and they focused on what they were good at.

The Ford F-150, some key luxury brands and a commercial division. If you like what you heard, subscribe and let me know what kind of videos you wanna see. Do you wanna see business breakdowns, acquisition explainers? Leave it in the comments below and follow for next time.