Part II: Ford's car cuts impact pre-owned & beyond

2018 Ford Taurus. Photo courtesy of automaker.
CARY, N.C.  - 

Beyond the residual value and consumer interest impact of the Ford sedan cuts discussed in Part I of this series, there is also the vantage point of the rental car market. 

Within the wholesale marketplace, there were about 1.7 million cars exiting the rental business last year and heading for wholesale, with NAAA members selling more than 800,000 at physical auctions, according to the 2018 Used Car Market Report and Outlook from Cox Automotive.

The company anticipates a slight dip in off-rental this year.

On a larger scale, lease/fleet/repo next represented 43.2 percent of overall vehicles sold at NAAA auctions of last year.

So, what might the rental and fleet implications be from Ford’s move?

A lower supply of these Ford models will likely help the wholesale values of those that remain in rental/fleets, said KAR Auction Services chief economist Kontos said.

“It may hurt Ford’s ability to serve the rental space to the same degree, but even in the rental world, it’s becoming more common that people will rent a crossover rather than a sedan,” he said.

Ivan Drury, who is senior manager of industry analysis at Edmunds, doesn’t see much of an impact on the rental companies, as they will be able to lean on car segment offerings from other automakers like Nissan, Hyundai and Kia.

“But I think from the government end, that’s where it gets a little bit trickier, because they have longer contracts … that might get trickier, but at the same time, they’re transitioning a lot of Taurus government (vehicles) over to the Explorers,” he said.

“It’s kind of ironic in that sense, too, that the government’s preference has changed. That would be the trickier one, but again they still have options if they want another large car, they can easily go to an FCA product,” Drury said. “We know those ones are going to stick around. GM is still committed.”

Ford could see “a little bit of business” go away there, but Drury doesn’t expect them to be “too bad off.”

Just as government fleets have shifted, Kontos expects Ford to be have an opportunity to serve rental fleets as they lean further on crossovers.

Another point on rental: consider what happen to the Chrysler 200 and Dodge Dart from FCA.  

“The rental car companies are also likely to avoid (the Ford sedans) if we use the Chrysler 200 and Dodge Dart as an example,” Cox Automotive chief economist Jonathan Smoke said in an analysis provided by email. “Sales into rental declined after FCA announced they were discontinuing the models and exiting the segments.”

‘Long game,’ but short-term impact

It’s the “long game” that Ford is focused with this move, said Libby Murad-Patel, who is Jumpstart Automotive Media’s vice president of marketing and strategic insights. That said, there could be some downside in the near-term, she said.

“I do believe that they’re really focusing their attention on the highest demand segments, as well as potentially those that may hold a higher profit margin for them. But in the short-term, I believe there will be some impact,” Murad-Patel said in a phone interview.

“Although we’re all seeing that cars are down across the market, we do still see that Fusion was the 19th best-selling (new-vehicle) model in the country in 2017. To even rank in the top 25, it’s still going to be a significant impact for Ford,” she said. “I know that they won’t cut off immediately, but even in a phase-out, I do believe that there will be an impact on the demand side of it.”

What’s more, interest in new midsize vehicles climbed 9 percent on Jumpstart sites last year. It ranked No. 3 out of 33 segments, according to analysis from Murad-Patel. So, there’s certainly strong demand for that segment.

At Ford, Jumpstart expects close to 20 percent of small/midsize shoppers to move into the larger crossover/SUV segments of the brand. That leaves 80 percent that could be vulnerable to defection

“When we talk about Fusion as one of their top vehicles, I would say the likelihood for them to move over to a Chevy Malibu or Toyota Camry or Honda Accord is strong, because those are top competing vehicles within the segment, and probably from a price-point — especially on the Camry side — very similar,” she said.

Granted, there’s also the possibility that shoppers of the discontinued models could opt for a late-model or certified pre-owned edition of the same vehicle.

Murad-Patel said that, in general, Jumpstart has observed an increasing number of shoppers who start with new, but end up in used or CPO.

However, when its clear a car is on the way out, it tends to mirror the trends of vehicles late in a lifecycle, where it’s harder to sell older model years or old generations, she said. Some consumers may worry that such vehicles would not be supported by the automaker.

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