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How Ford Escape Is Taking Over the World

Stocks in this article: F GM HMC TM

DETROIT ( TheStreet) -- In an unexpected, dramatic change in the global automobile industry, utility vehicles have emerged as one of the hottest segments, with Ford (F) leading the transition.

At a press conference on Wednesday, Jim Farley, Ford's global marketing chief, said utility vehicle sales are growing worldwide, even in Europe, with global sales up 35% since 2005, while sales of small utilities are up 154%. "That's a growth business," he said. "With all the downturns in all the economies around the world, here's a segment that's growing."

"There are big trends going on, and they are really accelerating," Farley said. "(Talk of) the death of utilities was premature. It's just coming back in a different form. People around the world are falling in love with this body style."

Oversized, fuel-inefficient utility vehicles, once a symbol of American overindulgence, have fallen out of favor, replaced by smaller, more stylish versions, many built on car platforms rather than truck platforms.

Ford's success in utilities starts in the U.S., where it is the best-selling utility brand and Escape is the best-selling utility vehicle. In April, Escape reported its best April ever, as sales rose 52%. For the first four months of the year, Escape sales rose 31% to 98,809 while Explorer sales rose 34% to 62,853.

In China, sales of small utility vehicles rose to 1.4 million in 2012, up from 120,000 sold in 2005, according to IHS Automotive figures. Ford, expanding in China, now sells a portfolio of three utility vehicles: Edge, Explorer and Kuga -- the name used for the Escape outside the United States. In Europe, where the utility segment is the only segment to have grown since 2005, Ford increased Kuga production 8% this year to meet demand. Also Ford has rolled out its compact utility vehicle, the EcoSport, in China and plans a European introduction in the coming months.

Overall, utility vehicles now account for more than 13 million global sales annually, 18% of the global automotive market, with small utilities accounting for about 7 million of that, according to IHS.

What's driving the growth? analyst Jessica Caldwell said the vehicles "work for a lot of different people. Americans have started to size down SUV purchases because they don't need all that space." Farley said aging baby boomers, many of them now empty nesters, are also sizing down. At the same time, utilities are not only more fuel efficient than they once were, but also more stylish.

Caldwell said many buyers were formerly minivan purchasers. The minivan acquired "a negative image as a family car with nothing interesting about it," she said. "People didn't want to be seen in them. If you can drive an SUV, with cargo space and seating capacity, that seems a lot cooler."

As the middle class expands around the world, and as road conditions improve, "utilities are attractive in a lot of countries," Caldwell said. "The SUV is a status symbol, with higher seating, good visibility, and the boxy (shapes) gone."

Ford is not the only manufacturer to benefit from growing utility sales. In the first four months of the year, among compact crossover utility vehicles, sales of the Honda (HMC) CRV declined 6.4% to 91,893, enabling Escape to take the sales lead, while four-month sales of the Toyota (TM) RAV4 rose 9% to 59,954. In the mid-sized segment, sales of GM's (GM) Chevrolet Equinox rose 14% to 79,834.

Caldwell said subcompact utility vehicle sales are starting to emerge, led by the Buick Encore, which sales of 7861 through April, while Honda has shown a concept for a subcompact CRV. "The sector has grown and will continue to grow, and now it is also fragmenting" into various subgroups, she said.

-- Written by Ted Reed in Charlotte, N.C.

>To contact the writer of this article, click here: Ted Reed

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