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Thursday, June 27, 2019  Spokane, Washington  Est. May 19, 1883
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News >  Business

Killing the sedan is a headache for Detroit, bargain for drivers

UPDATED: Mon., June 25, 2018, 4:38 p.m.

Over the next few years, Ford jettison parts of its lineup that aren’t considered an SUV or crossover, including Taurus (production ends March 2019), Fiesta (May 2019) and the Fusion sedan (sometime in 2021). (Jeff Kowalsky / Bloomberg)
Over the next few years, Ford jettison parts of its lineup that aren’t considered an SUV or crossover, including Taurus (production ends March 2019), Fiesta (May 2019) and the Fusion sedan (sometime in 2021). (Jeff Kowalsky / Bloomberg)
By Kyle Stock and Keith Naughton Bloomberg

Some recommended viewing for Ford Chief Executive Officer Jim Hackett and his automotive C-suite rivals in Detroit and elsewhere: Walking Dead, World War Z and Dawn of the Dead. With the coming death of the sedan, these executives have some zombie cars to kill.

And as any horror aficionado knows, there’s a right way and a wrong way to do it.

Snuffing out a tired, clunky product in favor of a new, shiny one remains one of the trickiest tasks in management, especially as consumers become more attuned to blockbuster release events (thank Steve Jobs for that). A company that shuts down production too quickly leaves a lot of money on the table and tarnishes its brand. Do it too slowly, and the zombie goods stack up as consumers cotton to its demise. That means rolling out fire sale prices which-you guessed it-tarnishes the brand.

“It’s a pretty complex equation . a complete nightmare to manage,” said Jeff Schuster, senior vice president of forecasting at LMC Automotive, a research firm.

For consumers, however, the auto industry’s wholesale shift to SUVs represents a massive buying opportunity, at least for those who don’t mind driving a car that looks like, well, a car. If you’re not interested in climbing sand dunes, carting around soccer teams, or seeing around the row of SUVs in front of you at the stop light, then this is your time.

Indeed, the first casualties in the sunset of sedans became the subject of some ripe deals. Back in 2015, when the Dodge Avenger was mercifully relegated to a footnote in Fiat Chrysler history, the last models sold for more than 15 percent off the sticker price, a savings of roughly $4,000. Earlier this year, the company was forced to put a similar chunk of cash on the hood of its last 200 sedans.

Over the next few years, Ford will be navigating a similarly fraught path. It’s preparing to jettison parts of its lineup that aren’t considered an SUV or crossover, including Taurus (production ends March 2019), Fiesta (May 2019) and the Fusion sedan (sometime in 2021).

“They need to do this very delicately,” said John Murphy, Bank of America Corp. auto analyst.

Jack Kain, an 89-year-old Ford dealer near Lexington, Kentucky, is expecting the manufacturer to roll out hefty incentives in the coming months. His team is already having trouble selling sedans – the word is out. “It’s incumbent upon them to do what’s right,” he said. “It’s money that moves the metal; we all know that.”

Beyond the wary consumer, what also makes the transition process tricky is that it puts different factions of a company at odds. The team in charge of the outgoing vehicle has every incentive to pump up production and sell as many vehicles as possible in the final days. After all, the equipment has been amortized and the unit economics are good. But managers in charge of incoming products (read: SUVs) are facing the opposite economic equation. What’s more, their vehicles sell at higher prices.

Meanwhile, dealers such as Kain don’t want anything to do with the zombie machines. They are systemically flawed in the minds of most consumers and likely to take up valuable lot space.

To make matters worse for the old cars, traditional demand forecasts no longer apply – those making production decisions largely have to guess at how much a decision to kill a vehicle has trashed its appeal.

“Consumers don’t know when inventory is going to dry up and automakers sometimes don’t know either,” said Joe Wiesenfelder, executive editor of Cars.com, an online listing platform for dealers and individuals alike.

So the trick to a successful transition? A cool head. Automakers should move adroitly to trim production as they move to new vehicles, avoiding any need to slash prices too much. That’s what Volkswagen managed to do when it scrapped its Eos sedan in 2016. Ford has assured investors that its transition will be “orderly,” with no threat to resale values or dealership relations.

“They’ve been getting better at that across the board,” Wiesenfelder said. “They’re just deciding when the plug gets pulled – and they’re pulling it.”

In some ways, a dying car is easier to manage than one that’s being replaced by an updated model. TrueCar analyst Eric Lyman said automakers retain some pricing power simply because outgoing models aren’t being replaced: they are the last of their kind.

“Obviously, these are distressed vehicles,” he explained. “But there’s a lack of pressure from that conveyor belt of inventory that you typically see in a showroom.”

In fact, high-performance variants such as the 350-horsepower Focus RS might even see prices spike before coasting into oblivion. These cars tend to have a small, cultish following – and the fixed expiration date tends to draw buyers who’ve been on the fence.

But a Taurus? Probably not.

“With midsized sedans, there’s not quite as much of ‘I’ve got to have one of the last ones,’” said Brian Smith, Hyundai chief operating officer.

Hyundai, and carmakers like it, will be looking to exploit such planned wind-downs. It has no immediate plans to scrap its sedans, and will be targeting would-be buyers of the Fusion and other outgoing models. Price wars could flare up.

Lyman at TrueCar, however, doesn’t think it’s savvy to wait until the bitter end to buy a zombie car. Inventory could be scarce and the deals may not materialize.

“The variance between one of the best days of the year (for pricing) and the worst days of the year are going to be less than the cost of a major mechanical repair on a vehicle,” he said.

However, there are thousands of people tooling around in near-new Chrysler 200s and Dodge Darts that would beg to differ. Either way, zombie machines offer more negotiating leverage than usual and, at the moment, they are still very much alive.

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