Smaller cars mean smaller profits for Ford

What will changing consumer preferences mean for automakers' business strategies?

Ford Motor Co. has enjoyed high profit margins on sales of larger car models, especially SUVs. But as consumers preferences shift to smaller (read: less expensive) vehicles, the automaker has said it expects its profit margins to shrink as well.

“We continue to see consumers trading down to smaller vehicles,” said Ford's president of the Americas region, Mark Fields, at the Barclays Capital 2012 Global Automotive Conference on Wednesday. “Less trucks, more small cars and those vehicles have smaller margins.”

As consumers downsize from larger vehicles to smaller models, Ford's profit margins in North America are expected to fall to between 8 and 10 percent over time, compared to 12 percent in the third quarter. In the first nine months of 2012, Ford saw an operating profit margin of $6.47 billion before taxes in its North America sales, which translates to 11.2 percent (compared to an industry standard of 5 percent). But Fields said its margins would fall in the fourth quarter.

Fields is soon to take over as Ford's COO, after a tenure running North America's operations that saw record losses only four years ago turn to record profits this year.

Industry watchers will be interested to see how Ford - and other automakers - adapt to consumers' changing preferences, and what effect this could have on business strategy.

Photo: Ford

via [Automotive News]

This post was originally published on Smartplanet.com

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