Has Ford Passed Toyota for Good?

"Dog bites man" isn't news. Likewise, it's not really news that General Motors -- the leader in the U.S. auto market for decades -- is leading again this year. GM might have gone through the mother of all bad patches last year, but lately the General is looking pretty sharp, with fresh leadership and some impressive new models.

Of course, GM's turnaround has some way to go to catch Ford's (NYSE: F  ) spectacular rebirth as one of the world's most impressive auto companies. But despite Ford's dramatic progress, it's still surprising to dig down into the U.S. sales numbers and see that Ford is beating out Toyota (NYSE: TM  ) for second place.

Given that Toyota was battling GM for U.S. supremacy not long ago, and that Toyota can still (at least for the moment) claim the "world's largest automaker" crown, that's quite a reversal.

So here's the question: Can Ford sustain its lead?

A look at the numbers
A quick look at a few numbers shows the outline of the story pretty clearly: Overall auto sales in the U.S. are up, though still well below the levels of a few years ago. GM's sales are up somewhat, but not quite keeping pace with the overall market. Toyota's sales are down slightly versus this time last year. And Ford is just plain executing in a big way. Check it out:

Automaker

YTD Sales 2010

2009 Sales Through August

Percentage Change

General Motors

$1,461,700

$1,374,780

6.3%

Ford

$1,276,362

$1,077,850

18.4%

Toyota

$1,164,154

$1,170,409

(0.5%)

TOTAL US SALES

$7,661,592

$7,069,376

8.4%

Setting aside GM for a moment, there are really two stories here -- Ford's rise and Toyota's fall. On the strength of an intensely focused global strategy and a slew of new world-class products, Ford is exceeding even its own management's expectations. Just Wednesday, CEO Alan Mulally said on Wednesday that he expects the company to return to an investment-grade credit rating "a lot sooner than what we thought," after a strong sale of five-year notes by Ford Motor Credit, the company's finance arm.

That's one more drop in a huge bucket of evidence that Ford has gone from being a teetering old relic to a global powerhouse, as if we needed any. Sure, the company still has a big-time debt overhang -- but with profits (and sales) booming, there's good reason to think that the company will bring that under control before too long. CFO Lewis Booth, a man not known for extravagant predictions, has forecast that the company's cash will exceed its debt by the end of 2011.

Expanding into new markets, leveraging key technology partnerships with companies like Nuance Communications (Nasdaq: NUAN  ) and Microsoft (Nasdaq: MSFT  ) , and pushing into clean-propulsion technologies in a big way have all been part of the Dearborn giant's recent success.

On the other hand
But Toyota's no technological slouch, either. Despite the recall and PR woes that have driven sales away from Toyota this year, the company remains Japan's largest automaker, well ahead of longtime rival Honda (NYSE: HMC  ) , which has its own problems at the moment. One doesn't have to search very hard to find evidence of Toyota's success with cleaner technologies; the company's distinctive Prius hybrid is the hot-selling green car every automaker would like to have. Even Mercedes-Benz maker Daimler acknowledges Toyota's technological lead; reports in recent days suggest that Toyota is in talks with the German powerhouse to supply hybrid-car parts and technology.

Toyota's manufacturing is the industry's gold standard, and few automakers can match its technological edge, but the company has been knocked in recent years for a lack of distinction and excitement in its product line. As "quality" becomes less of a selling point -- more and more automakers are achieving quality ratings on par with longtime leaders Toyota and Honda -- styling and overall driving experience will become more crucial to winning sales. That's an area in which Toyota's flawless-but-dull products lag the world's best.

To his credit, CEO Akio Toyoda has acknowledged this issue. It's possible that Toyota's investment in Tesla Motors (Nasdaq: TSLA  ) was motivated in part by a simple desire to share some of Tesla's excitement. It's safe to assume that somewhere deep in Toyota's headquarters, teams of experts are hard at work on engineering more excitement into the company's future products.

How that will play out remains to be seen. But while Toyota's clearly still down, it's not out -- and while Ford is on the upswing in a big way, the battle for global supremacy between the Japanese giant, its two big U.S. rivals, and the other auto heavyweights will likely go on for a long, long time.

Read more of the Fool's global auto coverage:

Microsoft is a Motley Fool Inside Value recommendation. Ford and Nuance Communications are Motley Fool Stock Advisor selections. Nuance Communications is a Motley Fool Hidden Gems recommendation. Motley Fool Options has recommended a diagonal call position on Microsoft. The Fool owns shares of Microsoft. You can try any of our Foolish newsletter services free for 30 days, with no obligation.

Fool contributor John Rosevear owns shares of Ford. 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. The Motley Fool has a disclosure policy.


Read/Post Comments (8) | 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 17, 2010, at 9:13 AM, GetRealSoon wrote:

    Hard to stomach such news when my FORD cruise control recall was repaired and still burned to the ground.

    Alan Mulally got bonuses and all I got was a burnt truck.

  • Report this Comment On September 17, 2010, at 11:26 AM, TMFMarlowe wrote:

    What year was that truck, GetRealSoon?

    John Rosevear

  • Report this Comment On September 17, 2010, at 2:15 PM, baldheadeddork wrote:

    I'm guessing somewhere between 1993 and 2003, John.

    Can Ford keep it's lead over Toyota? For the next 3-4 years at least, I think the answer is yes. If Toyota has hit rock bottom on its reliability and design issues, it's still going to be three years or more before we begin to see product created in this new era. Powertrain problems, like the broken valve springs, might take five or more years to sort out as they typically last across two or three platform generations. (Ironically, Ford had this same problem beginning in the mid 90's with oil leaks on its 4.0 V6 and major reliability problems with the A4OD automatic transmission.)

    It took Ford a full decade to turn their company around. Can Toyota do it faster? Maybe, but if they're going to get back to the product dominance they had in the 70's and 80's (and that Ford has now) it's going to take several years at the minimum to get there.

    I think the interesting question with Ford is what do they do with their strength? As impressive as Ford's revenue and market share numbers have been for the last year, the really impressive part to me is that both have grown faster than anyone else in the industry while Ford has pulled back on buyer incentives. I think it's great that Mulally is more concerned in profit per vehicle than market share, but it still means they're not growing as fast as they could be if they followed GM and Toyota and raised their incentives.

  • Report this Comment On September 17, 2010, at 5:05 PM, TMFMarlowe wrote:

    @baldheadeddork: Yeah, 93-03 was my guess, too, and you can guess what my followup was going to be.

    Detroit (esp GM) nearly died on a strategy of putting market share over profits. I don't think anyone is going to be making that mistake again anytime soon. (Though in 15-20 years? We'll see.)

    I do think the next decade is going to see TM, GM and Ford (and Hyundai, and maybe VW) chasing one another in markets all over the world. At the moment, at least, Ford has something of a head start.

    John

  • Report this Comment On September 17, 2010, at 6:41 PM, mtracy9 wrote:

    The forced downsizing of GM was the best thing that have could of happened to GM. It is allowing GM to focus on its key products.

  • Report this Comment On September 17, 2010, at 8:42 PM, TMFMarlowe wrote:

    @mtracy9: Yep, I agree. That, and getting good managers in there. CFO Chris Liddell is the first decent finance chief GM has had in... I dunno, ages. Years, certainly.

    As an aside, I just started reading Rattner's book... what a mess this crew inherited. Rick Wagoner is going to look really, really bad when all is said and done.

    Thanks for reading.

    John Rosevear

  • Report this Comment On September 17, 2010, at 11:42 PM, judithjo wrote:

    Ford's sales increase is probably due to Americans feeling they should buy an American car and especially an American car that didn't need a bailout. Have owned several Fords. No wonder Ford stands for Found On the Road Dead. Or, Fix Or Repair Daily. I'd never buy another one. Nothing but trouble. My 5-year-old Camry is fabulous. Never had a single problem.

  • Report this Comment On September 18, 2010, at 7:45 PM, Glycomix wrote:

    Ford is the last true US automobile company. It has turned itself around and produced superior products. The Ford Fusion was rated "Very Good to Excellent" by Consumer's Guide and the 2010 Taurus was rated "Excellent" by Road and Track.

    The Ford Fusion Hybrid received the same Excellent "84" rating by Consumer's Guide as the Toyota Camry hybrid but have 100 miles more of range and a five year manufacturer warranty instead of a three year warranty. According to Consumer's Guide the difference in "Bottom Line" price was about $1500. However two years more warranty might make a difference since the 2010 Toyota Camry was recently recalled. http://www.lemonauto.com/complaints/toyota/toyota_camry.htm

    Ford's has the best cars on the market and now the best earnings per share.

    In the first six months of 2010, it's already surpassed the 86 cents earnings per share for 2009. It showed 50 cents per share earnings in the first quarter of 2010 and a 61 cents per share earnings in the second quarter. If Ford continues its earning rate for the next 6 months their stock price of $12.49 producing a impressive current Price/ Earnings ratio of 5.63.

    Ford is a bargain even at the trailing 12 month Price/ Earnings ratio of 8.38 and its charts suggest that it is likely to hit $14 by the beginning of December. That's a 12% return on investment for 10 weeks. That's a 62% annualized return on investment!

    I'm buying Ford. I'll have to trim some deadwood to pay for it, but my own analysis just now convinced me.

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