More Gains in Store for Ford

The mid-month auto-sales predictions from industry-watchers Edmunds and TrueCar don't usually get everything right, but more often than not they're directionally accurate. In other words, even if the numbers don't match up once all the sales are tallied, they tend to give us early notice on emerging trends.

One of their observations this month? Ford (NYSE: F  ) is grabbing market share again.

That's not exactly an "emerging" trend, of course. The Blue Oval Crew has increased its U.S. market share in 22 of the past 23 months. Making that figure 23 out of 24 won't be worth much more than a bullet point in Ford's monthly sales press release.

But if the latest predictions hold, this month's gain is going to be interesting for another reason.

Trouble for Ford's ancient rival?
Ford's gains over the past year have appeared to come from a number of sources. For instance, the company clearly benefited from Toyota's (NYSE: TM  ) recall fiasco earlier this year, as did Honda (NYSE: HMC  ) to some extent. But the current batch of data suggests that General Motors is losing ground at the moment.

On a year-over-year basis, the shift is pretty dramatic: Edmunds sees Ford's market share rising to 16.4% in September, versus 15.2% a year ago. GM's U.S. market share, meanwhile, is expected to fall to 18.3% in September, versus 21.2% in September 2009.

Of course, market share is one thing and sales are another, and Ford and GM are both expected to post year-over-year sales gains. Given that last September was the month after the "Cash for Clunkers" incentive program ended, that's not much of a surprise.

Still, Ford's sales gains seem likely to be quite solid, with TrueCar predicting a hearty 41.7% year-over-year gain. Again, we can attribute some of that gain to "Cash for Clunkers." Ford's fuel-efficient lineup did well during the incentives program and probably pulled sales forward from last September. But my sense is that the story is really pretty simple: Ford's on a roll.

Small details bringing good news
Here's an example of how things are going for Ford these days. Buyers of the company's hot-selling new-to-the-U.S. Fiesta small car are optioning them up heavily. Only 7% of Fiesta buyers are going for the lower-margin base model, Ford said this past week. That figure falls well below what the company had expected. Given that options packages are generally where the big margins are, that means Ford's profit per car is probably running far ahead of expectations as well.

The Fiesta is also attracting younger buyers, who have been hard for Detroit to reach in recent years. But Ford has worked hard to gain their business, by offering them everything from an advanced "infotainment" system to an interactive brochure packaged as an app for Apple's (Nasdaq: AAPL  ) iPad. And their efforts seem to be paying off.

This is a sea change. For years, U.S. automakers told us that "we can't make money on small cars" and didn't put much effort into the segment. They blamed any number of factors: high structural costs, low U.S. demand, currency manipulation by various foreign governments … you name it, and somebody in Detroit was complaining about it.

But now, with rigorous discipline and a sensible global product strategy leading to lower fixed costs, Ford's able to not just profit but also generate some excitement, even in a part of the market that's historically been a money-loser for Detroit, and even at a time when the overall U.S. vehicle-sales rate is significantly below historic trends.

Enthusiasm is still justified
I spoke with Ford CEO Alan Mulally recently about the company's progress. Given the way his team has been able to lower Ford's breakeven point, and considering the consistent increases in market share, he is as excited as you'd expect about the prospects for Ford's bottom line as the overall level of U.S. vehicle sales continues to recover from Great Recession levels.

Ford still faces some headwinds, including that daunting debt load, potentially escalating pension costs, a possible economic slowdown, and still-mighty competitors that seem to be getting their own acts together. But speaking as a Ford shareholder, one who wondered not all that long ago whether he was nuts for even thinking that the company would survive, I find it hard not to share Mulally's excitement.

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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 25, 2010, at 5:11 PM, TMFBreakerRob wrote:

    Good article, John....and not just because I happen to agree with it. LOL.

    There are a lot of folks out of work and a lot of people holding off from buying right now, but the ones in the market are "going for the gusto"....they're loading up vehicles to a much greater extent than expected. Couple that with the runaway success of already-high-margin products like the Super Duty pick-up, increasing market share as well as decreased incentives...and it has me convinced that Ford will surprise the market with 3Q results.

    Then, the kicker....

    Mulally is now saying that Ford will be investment grade sooner than expected. That will happen only if Ford accelerates the debt reductions to be in a net positive cash position again. Ford has previously said they'd be net cash positive by the end of 2011. So....I expect additional news on that front will be forthcoming.

    Yeah, this might sound like I'm "pumping the stock". In reality, I'm an excited shareholder too...and an employee that is proud to be a small part of that turnaround. And....as an employee of Ford Product Development, I can say...you "ain't seen nuthin' yet!". There is a huge wave of new product coming for global roll-out...and huge efficiencies being implemented.

    This is a great time to be associated with the company. :)

  • Report this Comment On September 25, 2010, at 5:48 PM, Detfan wrote:

    Don't forget that GM has actually increased its market share, comparing the four brand sales from last year to the 4 brand sales this year. Its apples and oranges right now until the YTD comparisons are purged of the Pontiac, Saturn, SAAB, Hummer sales, of which there were 14,902 of in September 2009.

  • Report this Comment On September 25, 2010, at 8:56 PM, baldheadeddork wrote:

    Detfan - that's the standard line from GM, but "Core brands" is an even more BS stat than adjusting for sale days in a month. Chevy may be selling more cars - but GM isn't.

    Most of the obsession about market share is about making the CEO feel confident when he walks into a crowded men's room, but there are some practical ramifications. Lower market share usually means lower revenues. It also means you're likely to be less efficient than you were in the past. That's not a clear-cut issue for GM because of all the capacity they've eliminated in the last few years, but shrinking the market share further means it's going to be an ongoing issue.

    But the most important effect of declining market share is that it is seen as a pretty big risk factor when GM's credit rating is assessed for bond issues. If you've done all the great things GM has done and you're still losing market share, investors and analysts are going to see that as a warning sign.

  • Report this Comment On September 25, 2010, at 11:11 PM, rmiers wrote:

    All the "car men" have left GM. It is run by committee. and a poor one at that. they have two great products, the malibu and the camaro.

    Ford has five great products and the superior truck. the new ford deseil engine is best on market.

    ford did not try to screw over their dealer network and the luxury car is coming down the pike.

    If you build great cars. people will buy them.

    labor lawyers do not know how to sell cars. they know how to kill the golden goose.

    Under dem's china get's GM and the panama canal.

  • Report this Comment On September 26, 2010, at 12:27 AM, baldheadeddork wrote:

    Umm...I don't think China got the Panama Canal.

  • Report this Comment On September 26, 2010, at 7:49 AM, Detfan wrote:

    Baldheadeddork, you are wrong. The fact that GM is now selling four brands, instead of 8 is a comparison that they have to live with until the discontinued brands sales don't effect current comparison sales. Ford is about to have the same problem as they eliminate Mercury the end of this year. The fact is, that Chevrolet, Buick , Cadillac, and GMC sales are all way up from last September, and that is why GM's market share is remaining where it is. Add the fact that Buick used to have just two nameplates, and now they are at 4, and within two years will be at 6, you can readily see just how well GM has done since the financial callapse in September 2008. Also, watch the Chevy Cruze sales as it hits dealerships. It will dwarf the sales of the Chevy Cobalt, which it is replacing. GM's revenues are way up also, as attested by the 2 qtrs of reporting profits now. ATP is way up and production costs are way down. When the economy ever recovers and auto sales pick up industry wide, GM will be making multiple billions per quarter.

  • Report this Comment On September 26, 2010, at 7:54 AM, Detfan wrote:

    rmiers, you are so wrong. The Chevy Traverse is the number one seller in the 8 seat crossover segment. The 2010 Buick LaCrosse is the number 1 seller in its segment. the new 2010 Cadillac SRX has increased it sales by over 500%, the new Buick Regal is hitting dealerships with excellent reviews and will lead its segment within 3 months. The new Chevy Cruze is industry leading in multiple areas, and GM can't build enough Chevy Equinox's and GMC Terrains, with only a 12 day supply on hand, even as they move on to the second model year. If you are going to post, you should, please, be accurate.

    Thank you.

  • Report this Comment On September 26, 2010, at 6:52 PM, baldheadeddork wrote:

    Detfan - with all respect, you're the one who's off base.

    Analysts don't look at same brand numbers in manufacturing the way Y-O-Y same-store results are used to remove some of the noise from retail numbers. No one talked about "core brands" when GM shuttered Oldsmobile or when Chrysler killed Plymouth, and they didn't look at it when Boeing shut down production of McDonnell-Douglas planes, just to name three examples. It simply isn't a metric that has been used in evaluating manufacturing companies before, and I don't think it's going to start now in the world outside of GM's press releases.

    GM is going to be a leaner company compared to where it was before, but it's also going to be smaller relative to the rest of the industry. Everyone expected that, and no one should get their Underoos in a bunch because someone pointed it out.

    If anything, GM's market share through this point in 2010 has been artificially inflated because they've put a ton of money on the hood. GM's average incentives per vehicle has run in the $4,000 range for almost all of 2010, and GM and Toyota are the only manufacturers to have raised their incentives compared to 2009.

    About the Cruze - we'll see. Outselling the Cobalt is setting the bar at the lowest possible level. From what I've read GM got a lot right with this car - it leads the class on interior space, the driving quality is good and it's well equipped. But the exterior styling is Lunesta-on-wheels and using Tim Allen as the pitchman won't help. Compact sedans have to appeal to younger buyers if they're going to succeed and I think the Cruze is going to have an uphill fight just because it looks like something your grandparents would buy and GM is marketing it to them. (Watch the launch TV spots for the Cruze and the Fiesta to see what I'm talking about.)

    What's worrisome about GM's financial numbers for the first two quarters of the year is that, despite having some huge competitive advantages over Ford and selling more cars, they're still making a lot less money. Ford made almost twice as much as GM in the second quarter despite selling fewer cars. In the first quarter, Ford out-earned GM by 2.5:1. With all the debt it wrote off in bankruptcy and it's renegotiated labor contract, GM's profit margins should be setting records right now, but if you look at the numbers for this year you'd think Ford was the one who wiped their books clean.

    And about GM's ATP - it's not way up related to the rest of the industry. It's only risen slightly more than the industry average, and it's growth has trailed Ford, Chrysler, Toyota and Hyundai through the first two quarters of this year. (http://www.gminsidenews.com/forums/f12/average-transaction-p...

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