Image source: Ford's Sept. 14 Investor Day Presentation.
With Ford Motor Company's (F 0.17%) highly anticipated investor day presentation in the books, there's a lot for investors to digest. One of the major focal points for the management team was to clearly define Ford as it stands now, with its core business of building vehicles and helping finance their purchases, and where it is going, with smart mobility projects. One of the concerns, though, was that Ford could lose focus on its core business as it invests more capital into being a mobility company.
I don't think that's going to be a problem, however, and neither does Ford. Here are two factors Ford outlined that it would be homing in on to improve its core business.
Lincoln's revival is finally gaining traction
It's a fact of life in the automotive industry that things don't change overnight. The process of refreshing a portfolio, reinvigorating vehicle design, and improving production issues takes years, but the work Ford has put into reviving Lincoln is finally bearing fruit.
Lincoln's U.S. sales through August are up nearly 10% compared to the prior year and are on pace to record the luxury brand's third consecutive year-over-year sales increase in at least two decades. But investors know the upside isn't just in the U.S. market, it's in China, where Lincoln's brand perception is equal to that of Lexus.
A Lincoln dealership in China. Image source: Ford Motor Company.
The good news is that Lincoln is the fastest-growing luxury brand in China, albeit starting from a lower sales base, and it's projected to more than double its sales volume in 2016. Globally, the story is similar: Lincoln's sales are projected to increase 77% from the 93,000 units sold in 2012 to the 165,000 mark for this year.
Lincoln's improvement isn't solely in regard to sales; J.D. Power's Initial Quality Survey showed the brand improved from ranking ninth in 2013 up to No. 3 in the latest survey. In J.D. Power's Automotive Performance Execution and Layout (APEAL) Study and Sales Satisfaction Index, Lincoln improved from ninth to fifth and from 12th to seventh, respectively.
Ford's luxury brand peaked in the late 1990s, and until recently, it's been downhill ever since. However, the seeds have been planted for strong growth in China, with nearly 50 Lincoln stores already open and another 10 on the way. Outside of China, Lincoln continues to improve its sales in the U.S. market as well as its portfolio quality and brand perception. Luxury sales can help Ford generate higher top- and bottom-line results, and as Lincoln rolls out new vehicles in the years ahead, including the flagship Continental, their success will be increasingly important for Ford's core business.
Don't give up on small models
When you hear Donald Trump start speaking about Ford sending small-vehicle manufacturing to Mexico, stop listening. Ford is making a business decision to make sure its small vehicles are globally cost-competitive and financially profitable. Remember that while sales of small cars are lagging in the U.S., they often represent the largest sales segment for emerging markets around the globe.
Ford's 2016 Focus. Image source: Ford Motor Company.
Ford's Fiesta and Focus are two of the best-selling small vehicles across the globe, but improving their financial success will be critical for the automaker's core business. For instance, Ford noted that in 2015, there were 200,000 order combinations of the Focus. That's akin to a production nightmare, but Ford has narrowed the number of order combinations to 300 this year, and it will be as low as 30 for the next-generation model -- a 99.9% reduction.
For those of you curious about what that would mean for the bottom line, it's equivalent to roughly $250 to $300 in cost savings per vehicle when you reduce the complexity to that degree. In an industry where a single percentage point of margin can make or break a quarter, that's a big deal on a car selling for around $16,000-$19,000.
Ford isn't giving up on small vehicles. Rather, it's focusing on improving its designs and scale, reducing complexity, and creating a low-cost footprint that clearly shows Ford isn't losing focus on its core business.
While we've all seen the headlines that Ford is working on numerous smart mobility projects and adapting its business model to profit from changing how the world moves, it's clear from the automaker's investor day presentation that it is still very focused on improving its core business of selling vehicles. Ford knows what keeps the lights on in Dearborn, but it also understands what it needs to do to keep those lights on in the decades ahead.
