Tiny SUVs are selling like crazy, and struggling Ford wants in

Key Points
  • The Ford EcoSport is a tiny subcompact SUV, which is the fastest-growing segment in the U.S.
  • The vehicles bring in higher transaction prices than subcompact cars.
  • Ford needs to boost its bottom line, in part to fund its new mobility initiatives.
The Ford EcoSport
Source: Ford Motor Company

Ford badly needs profits and is betting that selling more SUVs, even really tiny ones, will bring them.

The company is rolling out its EcoSport subcompact SUV to dealerships now. With the move, Ford wants to claim a piece of the fastest-growing segment of the profitable and popular sport-utility market.

Profits are especially important for Ford right now, which is still very much in the middle of a turnaround since appointing CEO Jim Hackett in early 2017. The second-largest U.S. automaker is trying to improve its financial fitness and erase a perception that it is behind rival carmakers and tech firms on the development of new mobility technologies.

Ford shares were down nearly 5 percent on Thursday afternoon.

The Ford EcoSport
Source: Ford Motor Company

The EcoSport is another step toward selling cars that will bring in more money. For one thing, subcompact SUVs are popular with buyers looking for a car that offers the ride height and flexible storage of SUVs in a nimbler package. It has been the fastest-growing segment in the U.S. since 2010, Ford said at an event with reporters on Thursday.

Since 2014 alone, sales of subcompact SUVs have more than tripled. About 425,000 subcompact SUVs sold in 2017, and Ford expects that number to rise above half a million in 2018. Buick's Encore, for example, is that brand's best-selling model.

They also command higher prices than comparable small cars. Average transaction prices for subcompact SUVs such as the EcoSport are $4,500 higher than Ford would get from a subcompact car like the Fiesta, and $2,500 more than the company would get from the compact Focus, Ford said at an event with reporters on Thursday.

The EcoSport starts at around $20,000, but there are higher trim versions available, which allow Ford to charge more for the car at relatively little cost. Ford's sales of higher-trim SUVs, such as performance or luxury versions, make up 36 percent of all SUV sales.

The cars are attractive to young buyers looking for a versatile entry-level car, and older buyers looking to downsize from larger SUV models, Ford said. About 41 percent of subcompact SUV buyers are ages 45-64, and just over 20 percent are so-called milennials.

The segment also attracts increasingly important demographics, such as culturally diverse buyers and a higher share of women than the overall car market.

Ford released earnings on Wednesday that missed Wall Street expectations, and the company is facing some impatience from investors who are looking for more details on Hackett's plan to improve the company's future. Hackett's appointment generated a great deal of interest and enthusiasm on Wall Street. But the fact that Ford still has much work ahead of it is beginning to sink in.

"Ultimately, while we agree with the long-term approach of Hackett, arguably, there won't be much to get excited about with the Ford story until 2019 or perhaps 2020," said Barclays analyst Brian Johnson in a research note on Thursday.