Ford Hits a Pothole

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Well, it finally happened: Ford's (NYSE: F  ) run of year-over-year sales increases came to an end, thanks to an industrywide decline. Ford's U.S. sales in August were down 10.6% year-over-year, the company announced on Wednesday.

That's not much of a surprise, given that last August's numbers were juiced by the government's "Cash for Clunkers" program, but what is a little surprising is Ford's August sales were down over 5% versus July's (discounting Volvo).

That's worse than some expected, and it's a sharp drop in a short time. What happened?

It's both good news and bad news
To be fair, the drop wasn't due to anything Ford did wrong. On the contrary -- U.S. auto sales got clobbered across the board in August, and while it looks ugly out of context, Ford's sales decline actually outperformed the market. As the Blue Oval's PR crew hastened to point out, the company's share of the U.S. market rose to 15.8%, its 22nd monthly increase in U.S. market share in the last 23 months. Sales of the company's F-series pickup, Taurus, and Mustang were cited as particularly strong.

PR crews at most of the other automakers had less to work with. Toyota (NYSE: TM  ) and Honda (NYSE: HMC  ) , both of which saw strong Cash-for-Clunkers activity last year (the program accounted for half of Toyota's August 2009 sales, said a spokesperson) announced year-over-year declines of 34.1% and 32.7%, respectively.

General Motors' were down 24.5%, but there's arguably an asterisk on that number: At this time a year ago, GM was winding down the Saturn, Pontiac, and Hummer brands. Comparing GM's "surviving" brands -- Chevrolet, GMC, Buick, and Cadillac -- to year-ago numbers gives a Ford-like 11% decline and a gain in market share. Likewise, Hyundai's decline was ahead of the market, and the up-and-coming Korean automaker saw a gain in U.S. market share on the month.

Of course, autos aren't the only sector suffering from what looks like a slowdown in customer spending. Luxury homebuilder Toll Brothers (NYSE: TOL  ) reported a profit for the second quarter, but saw fewer buyers signing contracts and said that demand had declined since May. Likewise, while August results for retailer Nordstrom (NYSE: JWN  ) looked solid (at least in comparison with 2009), Target's (NYSE: TGT  ) results came in below expectations -- possible further evidence of softening consumer spending.

The overseas picture is rosier
Ford didn't have much of a presence in China until recently, but sales have been ramping up: The company and its joint-venture partners sold 44,047 vehicles in China in August. That's still paltry compared to GM's August total of 181,625, but Ford's growth is outpacing GM's at the moment -- Ford's China sales total represents a 24% year-over-year increase, versus 19.2% for the General.

In India, Ford sales are positively booming, led by strong results for the Figo, a small car based on the last-generation Fiesta that has proven popular with value-conscious Indian buyers. August sales were up a whopping 220% year-over-year, and year-to-date sales are up 195%.

This is the region that will drive Ford's growth for the foreseeable future -- the company said that it expects 70% of its sales growth over the next decade to come from what it calls the "Asia Pacific and Africa" region, where it has invested over $3 billion since 2006 in an effort to catch up to big regional players like Toyota, GM, and Volkswagen.

Long story short
Ford shareholders -- full disclosure: I'm one -- still have a lot to keep an eye on, despite the emphatic success of the company's turnaround efforts to date. Barring a dramatic economic downturn, the company should be able to stay profitable (and stay well ahead of payments on its still-massive debt) -- but if U.S. market sales shrink much further, its margin for error could start to shrink as well.

Read more of the Fool's auto coverage:

Fool contributor John Rosevear owns shares of Ford, which is a Motley Fool Stock Advisor pick. You can try Stock Advisor or any of our Foolish newsletter services free for 30 days, with no obligation.

True to its name, The Motley Fool is made up of a motley assortment of writers and analysts, each with a unique perspective; sometimes we agree, sometimes we disagree, but we all believe in the power of learning from each other through our Foolish community.

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Read/Post Comments (7) | Recommend This Article (14)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On September 02, 2010, at 5:50 PM, bellrunner wrote:

    It is interesting how negative the FOOL's articlecs are concerning Ford.....Always.

    "Ford Hits a Pothole".....To many of us it looked like

    Toyota and Honda hit the "pothole".....But the FOOL would never start an article with a negative remark about Toyota or Honda....interesting.

    signed, a long time FOOL thats getting tired of it.

  • Report this Comment On September 02, 2010, at 7:07 PM, Adamu07 wrote:

    I'm kind of an "Old School Fool" (to coin the phrase used on Chalk it up to "perception". Everyone's is different. I sensed "suppression" in John's article with regards to exuberance about Ford's performance and prospects. There's a lot of great things to say about Ford, but let's not get too carried away just yet. There are some significant hurdles. I think John portrayed that quite well. I also think Honda and Toyota's results spoke for themselves. Can't say much more negative things about negative numbers.

    Long Ford,

  • Report this Comment On September 03, 2010, at 7:23 AM, TMFMarlowe wrote:

    Guys, the article is focused on Ford because Ford's continued success is of major interest to lots of Fools, including me. I'm a Ford shareholder and have sung the praises of this management team's execution plenty of times over the last couple of years -- all the way back to January '09, when most of the media were still writing them off. If you think the Fool's coverage -- or at least my coverage -- of Ford is arbitrarily negative, then I suggest you read more closely.

    Right now, though, the story is that sales are down across the board, and we need to keep that in mind as we look toward third quarter results. I have seen nothing to suggest that the company isn't executing as well as anyone could expect in this difficult environment, but an economic pothole is still a pothole.

    Thanks for reading.

    John Rosevear

  • Report this Comment On September 03, 2010, at 12:33 PM, bellrunner wrote:

    My focus was directed more at the attention grabing headline "Ford Hits a Pothole" than the article itself.

    Like everything else in this fast pace life it is the 2 second sound bit that is absorbed without regard to the full content.

    Long Ford / Long Fool.

  • Report this Comment On September 06, 2010, at 5:39 AM, Jehnavi wrote:

    I am a shareholder and Ford have sung the praises of the abundance of the implementation of the management team once during the past two years - all the way back to January & 09, when most of the media were further depreciation. If you think the cover of Fool's - or at least my cover - Ford is arbitrary negative, then I suggest you read more closely.

  • Report this Comment On September 13, 2010, at 3:57 AM, baldheadeddork wrote:

    I'm sympathetic to John because he has to write something three or four times a week, and when he does a piece like this he usually does a good job of filling in most of the context.

    But I think he missed a big one here. If you look at SAAR projections over the year, they haven't moved very much. In April, back when everyone was talking about green shoots and a real recovery, analysts projected 11.2 million new cars and light trucks to be sold in the US market in 2011. What was it after the August numbers came in? Between 10.8 and 11.5, depending on who you ask. (The same source of the 11.2 in April - Autodata - had the 11.5 number for August.)

    You can see further evidence of this in Ford's production schedule for the fourth quarter. As part of the August sales release they said it would remain unchanged at 570,000 vehicles.

    Sales aren't shrinking. A 11.2m SAAR will be a 9% increase over the 2009 total, even though that number was inflated by C4C.

    And of course, Ford's making a lot of money even with sales at these levels. They posted $2.7b in profits for 2009, and $4.7b in the first two quarters of this year. I don't think those numbers are in danger because 1) Ford is increasing market share in a growing market, 2) They're selling more expensive vehicles and with higher option levels than a year ago, and 3) their incentives per vehicle is dropping practically every month. Their incentives for August were down compared to last year even with C4C.

  • Report this Comment On September 13, 2010, at 9:10 PM, TMFMarlowe wrote:

    Eh. It's tough to tell whether August was a seasonal artifact (as the SAAR soothsayers would have us think) or the beginning of a downturn. The fact that it came in below everyone's expectations argues for the latter, but September will be telling. F expects things to pick up, at least for them, but we'll see.

    They are certainly doing everything right and making money, even at this crazy-low sales level.


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