The automotive industry is currently being transformed by autonomous driving technology, electrification, and shifting consumer preferences. Those first two issues still exist on the margins, while the latter trend has already produced seismic shifts in the North American market and elsewhere. Sedans are being ignored by car shoppers and its a change that will force automakers to make tough decisions about the future of their passenger car lineups. In North America, FCA and Ford already bit the proverbial bullet by axing their sedans. Who will be next?
To understand why more automakers will inevitably cancel some or all of their sedans, we need to first take a look at the numbers that made FCA decide to axe the Chrysler 200 and Dodge Dart. In 2015, Chrysler sold 177,289 examples of the 200. Models that sell over 100,000 units annually generally stay in production. That is not any type of universal law, especially since the profit margins between vehicle segments vary by quite a bit. But they do matter. And for FCA, their mid size sedan wasn’t generating the money they had hoped it would.
The Dart was almost certainly another cash drain for FCA. Like its larger sibling, it moved the most units in 2015, for a total of 87,392 sold. With about 320,000 Darts and roughly the same amount of 200 sedans produced during each of their respective runs, both cars probably needed to double their sales in order to turn a profit for the company. It cost Ford $1 billion to develop the 2006 Fusion, Milan, and MKZ. Since the Dart and 200 shared even less parts with each other, its highly likely that FCA spent at least that much on their cars as well.
Let’s assume FCA earned $500 for every Dart sold and $1000 for every 200. Using the broad production numbers listed above, the total dollar amount earned by both sedans was $480 million. That means its entirely possible FCA lost over half a billion dollars on both cars. No wonder Sergio publicly admitted to both of them being extreme money losers. And the numbers I chose are not based on any real numbers, corporate leaks, or estimates from industry experts. It’s not outside the realm of possibility that FCA lost even more money with these cars.
Financial arguments aside, its pretty shocking when an automaker cancels a long running and relatively popular nameplate, but its even more surprising when a manufacturer abandons entire segments. But if they’re not selling, why should they keep building them? In the specific case of the Ford Focus, which experienced a 41 percent drop in sales between 2012 and 2017, several factors contributed to its demise. Ford likely spent a considerable amount of money developing the platform. And while it may be profitable overall due to its use in the Ford Escape, Transit Connect, and Lincoln MKC, the company still has to expend its resources to develop unique components for the Focus. The issues with the Powershift dual clutch automatic probably didn’t help things either.
And there are other factors worth considering, like opportunity cost. Michigan Assembly Plant, which built the Focus from 2010-2018, is currently being retooled to produce the next generation Ford Bronco and Ford Ranger. If Ford simply remodeled the plant for the Ranger back then its entirely possible that the truck would have reached heights that the new model can only hope to achieve when it debuts early next year. Hindsight is obviously 20/20 though, which is why we see automakers making important decisions after external changes occur, not before.
These issues are worth discussing because FCA and Ford are not the only automakers faced with these types of decisions. Volkswagen, Kia, Hyundai, General Motors, and other manufacturers are going to have to grapple with walking away from segments they’ve competed in for decades. And the majority of these companies currently sell compact and mid size sedans that move or have moved less units than the Dart or 200.
I took a screenshot of Good Car Bad Car’s September 2018 sales chart for small cars sold in America because it clearly demonstrates why more automakers will walk away from passenger cars. Only the Hyundai Elantra performed decently. Almost everyone else experienced significant declines when compared to 2017’s numbers. No one was spared.
The mid size segment didn’t do well either. Every nameplate is doing worse in 2018 when compared to last year. That decline is even more dramatic when year compare year to date 2017 sales with figures from 2013 or so. And its not just mid sizes either. Pretty much every single sedan experienced significant drops in volume over the last several years.
And full size cars? Also flailing about wildly. It’s entirely possible that no mainstream, full size sedan will break 100K units this year.
There are a lot of models potentially on the chopping block. Let’s go through them segment-to-segment.
Likely Cancellations: Fiat 500/500L, Chevrolet Spark, Chevrolet Sonic, Hyundai Accent, Kia Rio
Toss Ups: Honda Fit, Toyota Yaris
None of the above models will likely break 40,000 units this year. There is no way any of these models make enough money in North America to justify their continued existence. None of these models are truly purpose built for the United States or Canada. Ironically, that might be the reason why they haven’t been cancelled yet. And the Yaris may get a stay of execution if the next generation model is developed by Mazda.
Likely Cancellations: Subaru Impreza, Mazda 3
Toss Ups: Chevrolet Cruze, Kia Forte, Hyundai Elantra, Nissan Sentra, Volkswagen Jetta, Volkswagen Golf
Like the previously discussed subcompact models, all of the players listed here are designed with a global audience in mind. That means the larger companies might find it acceptable to use their compacts as loss leaders in order to get entry levels buyers hooked on their respective brands. Subaru could likely switch a decent portion of sedan buyers to the hatchback model. Or they might be saving enough money with their new modular platform to the point where the sedan is financially viable on its own. The Sentra, Forte, and Elantra are the three “value amigos” known for their low prices, which obviously eats into profits and makes them good candidates for cancellation. The Kona, Kicks, and Rouge Sport are viable alternatives for compact sedan shoppers. Given the corporate synergy between Hyundai and Kia, its also a possibility they stick around due to their shared platforms and powertrains. The Volkswagen Jetta and Golf will likely stick around because of Wolfburg’s historic stubbornness when it comes to the American market.
Mid Size Segment
Likely Cancellations: Volkswagen Passat, Subaru Legacy, Mazda 6
Toss Ups: Chevrolet Malibu, Hyundai Sonata, Kia Optima
The mid size sedan segment is still pretty large despite its notable contractions over the past several years. This is where I can see a number of automakers sticking it out even if competing in the segment doesn’t make complete financial sense. The purpose-built American Passat is a no-brainer for cancellation due to its mediocre sales numbers. And the Legacy should get the axe too. The developing bromance between Mazda and Toyota could mean the 6 survives as a re-badged Camry. The Hyundai corporate system might make the Sonata and Optima profitable, which means they survive. General Motors has indicated that they like the idea of being the only American company in the segment, so they’ll probably stick around longer than they should.
Full Size Segment
Likely Cancellations: All of them?
From now on, if I’m talking to someone and they bring up full size sedans, my immediate reply will be a Regina George approved retort like “stop trying to make full size sedans happen, they’re not going to happen.” Why are so many of these still in production? The American minivan segment contains five vehicles and they’ve collectively moved about 375,000 units through September. There are currently nine full size sedans competing for a slice of a pie that has only reached 246,000 units this year. And I bet a substantial portion of those numbers are fleet sales. Mid size sedans are the obvious substitute here, because there isn’t much of a size penalty anymore. And there is no refinement gap either. At least half of this segment needs to die.
Sedans are not dying. That doesn’t mean they won’t die in the future; this is simply a contraction of sales due to a rapid shift in consumer preferences. At some point the market will self correct and rationalize. The question is when, because if Ford can’t make money on a Fusion that sells around 170k per year and a Focus that moves around 100k units in 12 months, its competitors probably can’t either.
The car buying habits of the American public will inevitably shift over time. Forty years ago, some of the best selling cars were rear wheel drive coupes. And body-on-frame sport utility vehicles sold in much higher numbers during the 90’s than they do now. Crossovers are all the rage today, and its a trend that isn’t going away any time soon. Beloved and familiar nameplates will get cancelled. The mainstream subcompact, compact, mid size, and full size segments will eventually consist of a couple of Japanese models and one or two other brands. We’ll also see more off road oriented vehicles and at least one new mid size station wagon. That doesn’t sound too bad to me.