Yahoo Finance Ford CEO: Don't get used to cheap gas
Over the past decade fuel efficiency has been a major focus for car manufacturers. Hybrid, electric and lighter cars were the gold standard of automaker innovation. In the last year, however, there has been a dramatic shift. Crude oil has dropped 60% since its June 2014 peak and the average price of gas is now $2.14, down $1.19 from a year ago. 11 states currently have an average gas price below $2.00 a gallon.
With gas prices at a five-year low, consumers are quickly forgetting about fuel efficiency and once again buying gas-guzzlers. According to the University of Michigan’s Transportation Research Institute, the average fuel economy of a new vehicle purchased in December was 3% lower than it was in August. Pickup trucks and SUVs saw a 17% increase in sales year-over-year while compact fuel-efficient cars saw only an 8.5% increase, according to Kelley Blue Book.
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“We’re seeing continued growth in the industry,” says Ford CEO Mark Fields. “We expect moderate growth from last year.” Fields says that Ford has noticed “mixed changes,” and that he sees his customers buying bigger cars than before.
Ford’s business plan is reliant on customers remaining concerned about fuel economy. The company announced in November that their new F-150 pickup would be made of aluminum instead of steel. The change will take 700 pounds off of the truck and lower gas consumption, but it will also cost the company. The company will have to make extenisve changes to their factories in Dearborn and Kansas City in order to produce the vehicle to new specifications. According to Ford’s own estimates they will lose 90,000 units of truck production while they retool the F-150 factories. At an average cost of $40,000 per unit that’s a loss of $3.6 billion in potential revenue.
Fields still believes that consumers want fuel-efficient vehicles. “Across every segment no matter whether it’s $4 gas or $2 gas people want to make sure they’re getting good fuel economy,” he says. “When you look at the pickup segment the number one dissatisfier over many years has been fuel economy.”
According to Fields, Ford’s view is that over the medium to long-term gas prices will continue to go up. “Clearly we’re seeing some of the supply-and-demand statistics play out and we’re seeing low fuel prices, we may see that for a certain amount of time but our medium and long term view is that they will go up,” he says.
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