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Is it a bad time to stop making small cars in the U.S.?

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Ford recently announced that it is reducing its passenger car lineup to just two models in the U.S. Other automakers, such as GM, intend to follow suit. Some say automakers are financing their electric-vehicle research by selling SUVs, which are in high demand now.

Question: Is it a bad time to stop making small cars in the US?

Phil Blair, Manpower

YES: It's a bad time to stop making small cars anywhere in the world. Climate change is a reality. We need to discourage large trucks and vans being used as family cars. Instead, we should be encouraging small cars, especially electric ones.

Kelly Cunningham, San Diego Institute for Economic Research

NO: Automakers succeed on market demand, efforts otherwise tend to be unproductive. The public currently demands SUVs and it would be counterintuitive to not make those vehicles. Government intervention usually causes inefficient allocation of resources. Automakers have a stake in keeping abreast of new technologies and applying them to their products. The long-term commitment needed to produce new cars means automakers must keep ahead of future demand. Auto companies recognize electric vehicles are the future and are investing accordingly.

David Ely, San Diego State University

NO: Auto companies are behaving rationally by shifting production toward SUVs, crossovers, and pick-up trucks that are in much greater demand than small cars. If fuel efficiency standards are relaxed as the administration has proposed, the shift toward larger vehicles will become even more pronounced. While there is a risk that rising gasoline prices will reverse this trend, it seems small relative to the risk of producing small vehicles that most drivers no longer want.

Gina Champion-Cain, American National Investments

NO: Ford's CEO, Jim Hackett, a furniture industry veteran with little auto industry experience, has shaken a legacy industry by dropping low margin small vehicles. Historically, the industry has competed for unit volume. Its new philosophy appears to focus on high unit margin generated by the profitable truck and SUV market. Hackett's bold leadership will greatly reduce costs while increasing margins, and make for an intriguing business case study for years to come.

Alan Gin, University of San Diego

NO: With SUVs getting better gas mileage, consumers are choosing to have more space without making a huge sacrifice in fuel efficiency. The improved fuel efficiency will lessen the negative impact of an increase in gas prices, which nearly killed the domestic auto manufacturers when they previously emphasized SUVs. In the case of Ford, focusing on SUVs and trucks and only a couple of sedan models will allow it to achieve economies of scale and provide the capital needed to produce more electric vehicles.

James Hamilton, UC San Diego

YES: This is a familiar cycle. Gasoline prices are low for a while, Americans return to favoring gas-guzzlers, and Detroit thinks that’s where all the money is to be made. Then when gas prices go up, people stop buying those cars, and the domestic auto industry starts hemorrhaging. Last time this happened, GM almost went bankrupt. American automakers need to look at the broader picture, not just next month’s sales.

Gary London, London Group of Realty Advisors

NO: What Ford is doing is prepping for the next generation of autonomous, electric autos. To best accomplish that they are focusing on their cash cows of trucks and SUVs, taking the profits from those and the savings from not building the marginal brands of cars, and funneling it all into the innovation research and retooling of the new vehicles. This is a very good sign of a company responding to the market, acting nimbly and in the best interests of our economy and our nation.

Norm Miller, University of San Diego

NO: While larger vehicles and trucks continue to sell well and they are more profitable, manufacturers need to hit future target miles per gallon requirements, which they can only do with smaller or more efficient cars, especially hybrids and electrics. While the current federal administration may ease off these phased in requirements, it is short sighted to assume that California or future administrations will not reverse the longer-term trend towards energy efficiency and environmental concern.

Jamie Moraga, IntelliSolutions

NO: Automakers are responding to consumers desire to buy larger vehicles, like SUVs and trucks. Currently, smaller vehicles are lower in demand, so automakers are putting their resources into those that do sell while investing in electric and battery-powered technology for the future. However, gas prices are rising, and we don’t know how high they may go. When it starts to hurt at the pump, and larger vehicles become less affordable due to rising manufacturing costs and interest rates, consumers may look to smaller car options.

Austin Neudecker, Rev

NO: Ford should move towards electric, driverless vehicles designed to be on the road longer. We need cars that serve conscious and thrifty consumers through an uncertain oil future and push our pollution problem back on the grid. Although uproar is inevitable, driverless technology will eventually be accepted as a moral imperative (30,000 killed by distracted drivers every year). Finally, the ride-hailing phenomenon will become more ubiquitous and need cars built to drive six to 12 hours a day and greater than 1 million miles.

Bob Rauch, R.A. Rauch & Associates

YES: SUVs are more profitable than small cars so automakers are basically funding the next generation of cars with sales of gas guzzling SUVs. Small cars save on gas but won’t help the short-term profits of today’s automakers. That said, late cycle economies portend higher gas prices. The higher prices go, the better smaller cars will look. I would want more small cars – SUVs will be out of favor as soon as a downturn comes.

Lynn Reaser, Point Loma Nazarene University

NO: U.S. consumers have turned to trucks, crossovers, and SUVs, which continue to be made with greater fuel efficiency. The rise in shale oil productive capacity should keep a lid on gasoline prices. If gas prices were to jump, General Motors plans to help insulate itself by deploying more of its capacity in producing electric vehicles. Ford could meet a surge in oil prices with an increase in imports from its factories in China.

John Sarkisian, Motion Ventures

NO: The automobile companies are adjusting the product lineup to meet the demand of consumers. Consumers are buying SUV’s for their functionality over the traditional passenger car. Higher ground clearance, better visibility and hauling capacity give the SUV a clear advantage over the passenger car. New gas mileage standards and emerging electric models make SUV’s economic to operate.

Chris Van Gorder, Scripps Health

NO: But only if Ford and other manufacturers are using their resources to further develop electric-vehicle and non-carbon fueled vehicles. From an economic perspective, I can’t blame Ford from stopping small vehicle manufacturing if no one is buying those vehicles. However, the challenge for Ford and others is to anticipate future changes in demand that may be driven from higher fuel costs or government mandates, and be ready with alternative vehicles when that time comes.

Have an idea for an EconoMeter question? Email me at phillip.molnar@sduniontribune.com.

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