Is Ford's Momentum Stalling?

How did your favorite automaker do in 2010?

We'll know for sure when the year's final sales numbers are released next week. But some trends have been clear for a while: Ford (NYSE: F  ) is going gangbusters, General Motors (NYSE: GM  ) is showing signs of strength, Honda (NYSE: HMC  ) is holding its ground despite some product challenges, and Toyota (NYSE: TM  ) ... well, Toyota had a year to forget.

Edmunds.com is predicting a strong finish for the industry as a whole, at least in the U.S., with December poised to be the strongest sales month since the Cash for Clunkers heyday in August 2009.

As Edmunds notes, a strong December bodes well for a stronger 2011. But there are some surprises deeper in the numbers, including a biggie: Ford's momentum may be slipping.

Don't get too worried yet, but ...
Don't get me wrong, the Blue Oval's still doing well: Edmunds predicts a 5.1% year-over-year gain for the Dearborn automaker, more than enough to ensure a happy-making year-end total for the company. But for once, Ford's trailing the average. Sales across the board are expected to be up 10.2%, with Chrysler, GM, and Nissan among the biggest gainers.

For months now, Ford's sales growth has beaten the averages, not lagged. What gives? I think there are a couple of things at work here:

  • Ford's not the only good story anymore. Ford's products and execution have been the talk of towns all over the world for a couple of years now. The company was able to continue spending on product development through the downturn, when most competitors were forced to cut back, and its consistently excellent string of new cars and trucks, backed by great technology, have won lots of happy new customers. But others are starting to catch up. GM, Chrysler, Nissan, and Hyundai each have some good product stories of their own to tell, making the Blue Oval's sales job that much harder.
  • Products in transition. Ford's in the process of rolling out a new global compact car (the Focus), a completely rethought version of its signature kid-hauler (the Explorer), and a major refresh of its top-selling F-150 pickup family. It's natural that sales in those categories (and they're all big categories, at least in North America) would lag while old inventories are sold down and new products make their way to dealers. Meanwhile, potential Explorer buyers are checking out GM's excellent competitive offerings, compact shoppers will give the Chevy Cruze or Hyundai Elantra a look, and so forth -- and some of those sales will go elsewhere.

Long story short, there's both a momentary lull (which happens, and should pass) and a larger competitive issue (which is more of an issue).

Is all of that bad?
Yes and no.

No, it's not bad in that Ford's management has done just about everything right, and then some. We knew all along that the company had a window of opportunity to grab sales and market share before competitors recovered, and it has done so in a way that exceeded even management's optimistic expectations. The company recovered its long-standing position as the no-questions-asked No. 2 in the U.S. market, and even challenged GM's leadership for a while.

From a business-health standpoint, the story is even better. Ford's cash on hand may have already surpassed its remaining debt, and an investment-grade credit rating is likely in the not-too-distant future. Shareholders really couldn't have asked for a better performance.

But yes, it's bad in that the competitive environment, in the U.S. and elsewhere, is starting to get a lot tougher even as economies in the developed world start to show signs of strength. Hyundai has an extremely impressive product story to tell, Nissan is gathering steam, and the still-mighty GM is furiously preparing what might be the most important product onslaught of its long history.

Ford's not in trouble; far from it. The company should continue to reap solid sales (and profit) gains for a while yet, as its overseas expansion picks up and economies continue to recover around the world. But the competitive environment, always brutal in the car business, is only going to get tougher -- and that means Ford's growth numbers may be a bit less eye-popping from here on out.

Want to read more about Ford? Add it to My Watchlist, which will find all of our Foolish analysis on the Dearborn dynamo.

Fool contributor John Rosevear owns shares of Ford and GM. General Motors is a Motley Fool Inside Value pick. Ford is a Motley Fool Stock Advisor choice. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.


Read/Post Comments (13) | Recommend This Article (5)

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 December 31, 2010, at 12:07 PM, JonsZx2SR wrote:

    Buyaluminium, where have you been the past 5 years ??? Ford has been a leader building quality small acrs and trucks in Europe and has already started selling those products in the US (Fiest, Transit van) with the European Focus and C-Max to come. The Fusion has become one of the 3-4 best cars in the small mid-size class. If anything Ford is situated well to sell good small cars while continuing to sell larger cars and trucks. Under Alan Mullaly the shift started 3 years ago and consumers have started to notice.

    I'd be more worried about GM, they have an opportunity to also break into the small car market with the Cruze, but it better not have quality issues. Along with Ford, Nissan, Hyundai, Honda and Toyota are ready to carve up the small car market. The loser in all this is Chrysler, which is a dead company walking.

  • Report this Comment On December 31, 2010, at 12:09 PM, mzllrc wrote:

    Ford has done something many thought impossible. They make money while growing market share and with all of their own resources.

    How can you bet against that team?

    GM on the other hand has done nothing for themselves. The bail out and IPO were all managed by outsiders not GM internals.

    GM is still losing market share and even after pushing all their debt on the the backs of the American people continues to lose share.

    Ford has something GM doesn't, proven ability to out perform the market. GM hasn't done that for decades.

    If you want to buy an auto stock bet on ability.

  • Report this Comment On December 31, 2010, at 12:18 PM, InAtl wrote:

    Yes the new Ford Focus, Cmax and Explorer coming out this year I believe will offer some real sales growth opportunities for Ford. I also think the Fiesta sales will continue to grow.

  • Report this Comment On December 31, 2010, at 12:59 PM, SMOKEN42 wrote:

    LETS SEE.................. THE START OF A NEW YEAR AND ALREADY HERE WE GO AGAIN !!!!!!!!!!!!!!!!!!!!!!!!!!!!! THE ANALYSTS ,WHO COST POTENTIAL FORD INVESTORS MILLIONS OVER THE PAST TWO YEARS.................... WHO KNOW VERY LITTLE ABOUT THE AUTOMOBILE INDUSTRY.............. WELL YOU KNOW WHAT I MEAN.............FORD WILL BE 23 T0 25 DOLLARS IN THE NEXT TWELVE MONTHS...........THE REASONS TO AUTOMOBILE-PEOPLE ARE SIMPLE...................IT'S PRODUCT, PRODUCT, PRODUCT !!!!!!!!!!!!!!!!!!!!!!

  • Report this Comment On December 31, 2010, at 1:19 PM, BuyemHoldem wrote:

    Alan Mulally RULES... Mulally for President of the USA!!!

  • Report this Comment On December 31, 2010, at 1:38 PM, ffbj wrote:

    Ford is about where it should be.

  • Report this Comment On December 31, 2010, at 2:56 PM, bossbill wrote:

    Happy New Year to all Ford owners. Current and future. Stock and product. FoMoCo...No bailout...No bankruptcy. Stimulus free since 1903.

  • Report this Comment On December 31, 2010, at 4:46 PM, doverholt wrote:

    Just sold Amazon ! Time to take some profits, I think its on a bubble.

  • Report this Comment On December 31, 2010, at 5:00 PM, doverholt wrote:

    Selling Ford too! Up 50 % Time to invest in some gas sippers instead of guzzlers!

  • Report this Comment On January 01, 2011, at 12:01 AM, baldheadeddork wrote:

    If Ford wanted to challenge GM for #1 they could have done it this year. They're on a hot streak with product and the way this has always unfolded in the past is that the automaker crams cars onto dealer lots and into fleets, claims the biggest gain or the #1 spot, and then piles on incentives to get the retail deliveries up.

    That Mulally and Ford haven't gone down that road again is something of a miracle. They've trimmed incentives and focused on average transaction price first and market share second. It's part of how they've become the most profitable automaker in the world for 2010 without having the most sales in any major market. (The exchange rate didn't hurt, either.)

    So to answer John's question with a question, I think it depends on how you want to define momentum? If Ford struggles to maintain a 17% market share but they outperform the industry in profit growth every quarter, are they losing momentum?

    That's a real possibility in 2011. In the auto business new product is the most reliable way to raise profits because buyers drawn to brand new models don't demand as much in incentives and they're more willing to add options. But while profits go up, sales volume usually doesn't rise. It often takes more than three months to get production of the new model up to speed. You might see a big percentage rise compared to the old model if it was a dog (see outgoing Explorer) but sales volume doesn't hit its stride until the second year.

    All of this is relevant to Ford because they've got a boatload of new product for 2011. The Explorer will begin to really arrive in dealers in January, followed by the new Focus and the CMax minivan. In the late fall comes an all-new Escape and at this time next year we'll be talking about the imminent arrival of the all-new Fusion. And this comes after the all-new Edge, Fiesta and Taurus in 2010, plus new engines for the F-Series and the Mustang.

    The product cycle is lining up perfectly for what Mulally and Booth want to get out of the company. But how is the market going to react if Ford has all of this great new product and their market share doesn't outperform? Are investors going to react to the monthly sales numbers or the quarterly financial statements? If it's the first, F owners could have a bumpy ride this year. If it's the second, I won't be surprised to see $25 a year from now.

  • Report this Comment On January 01, 2011, at 12:02 AM, baldheadeddork wrote:

    And a happy new year to everyone!

  • Report this Comment On January 10, 2011, at 9:28 AM, michaelservet wrote:

    <i>But how is the market going to react if Ford has all of this great new product and their market share doesn't outperform?</i>

    The 'market share' references generally seem to be for the US market. Something like 72 million vehicles were sold last year, up about 10% from 2009. Only about 15% or so of those were in the US, which has been a relatively flat market compared to world-wide sales in general. Ford and others comete globally. Isn’t it time we start thinking about ‘market share’ in global terms?

    On a dollar basis, we’ll probably see that Ford was #5 or so in global sales for 2010. The real headline though is that when the earnings numbers come out for 2010, we’ll likely see that Ford was easily the most profitable auto manufacturer in the world.

    Whether we see a whole lot in the way of 'gains' on that will be tough to predict, as the article suggests. But $8B-plus in earnings is a pretty respectable base to be starting from. Unfortunately we can expect the predictable headlines of 'lower growth' going forward, as the profit laggards - Toyota and the rest - start to recover a bit from their recent abysmal earnings levels towards pre-recession levels, and the myopic financial press shouts about year-to-year improvement vs Ford in percentage terms.

    Also unfortunately, over the longer run we can expect the economics of the auto business to drag down even the best performers, as it always eventually does. Any business that's capital intensive but also highly competitive, with similar products across manufacturers, eventually is reduced to pricing products at close to its incremental-cost-to-produce (airlines are the extreme example). Unless there's somehow true and sustainable product differentiation, we'll continue to see that trend (or cycle).

    As the article also suggests, look to Hyundai to increasingly become the price-spoiler in the industry - as Toyota was a few decades ago. Their products are no longer jokes, and as their brand continues to gain public acceptance globally, they'll help keep prices (and earnings) in check. We've seen all this before, and we'll continue to see it again.

  • Report this Comment On January 13, 2011, at 12:29 PM, lostAviators wrote:

    A lot of my pilot friends say "if it's not a Boeing I'm not going". Boeing's loss, Ford's gain. Everyone is paying attention to Ford right now and it is because of the solid leadership and direction of Alan Mulally. I've seen many interviews with him, one just last night, this guy is the real deal and every time I hear him talk I more confident in Ford's Captain!

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