Track the companies that matter to you. It's FREE! Click one of these fan favorites to get started: Apple; Google; Ford.



Are Slipping Sales a Problem for Ford?

Watch stocks you care about

The single, easiest way to keep track of all the stocks that matter...

Your own personalized stock watchlist!

It's a 100% FREE Motley Fool service...

Click Here Now

Are Ford's (NYSE: F  ) sales heading down?

We'll know more when Ford and the other automakers release their totals for August later this week, but early signs for the industry as a whole are, at best, muddled. On the one hand, the usually on-target industry analysts at Edmunds are projecting that August's sales rate will be roughly on par with July's decidedly weak pace, suggesting that consumers are at least treading water for the moment.

In a somewhat different corner is Citi analyst Itay Michaeli, who in a note on Monday predicted a significant drop in overall sales in August -- but said that the bulk of the decline would owe to falling fleet sales. Michaeli expects August's retail sales rate to be similar to July's.

That wouldn't be the worst possible news for the automakers -- fleet sales tend to have lower margins than retail sales. But buried in Edmunds' projections was this eyebrow-raiser: While most of the automakers are expected to post small gains, Ford appears headed for a mild decline.

Time for shareholders to worry? Not necessarily.

A surprising "problem" for Ford
Edmunds is predicting that Ford's sales will decline 0.5% from July's levels, despite continuing supply problems for key competitors Toyota (NYSE: TM  ) and Honda (NYSE: HMC  ) , and that the Blue Oval will lose half a point of market share. Intriguingly, though, Ford's problem doesn't appear to owe to a drop in consumer interest in the automaker's most popular offerings.

Instead, Ford's problem may be one of supply -- but not for the same reason as its Japanese counterparts. Supplies of Ford's hottest new products -- the small Fiesta, compact Focus, and Explorer SUV -- are extremely tight, as demand appears to have outstripped the automaker's production plan. Ford recently said that the Focus is "turning" -- industry slang for the average amount of time a car spends on a dealer's lot before being sold; 30 to 45 days is considered healthy -- in just 11 days.

(I can attest to the supply problem: My wife just bought a 2012 Focus. She called over 50 different Ford dealers in the Northeast, trying to find a car with what seemed like a simple combination of options (hatchback, manual transmission, SYNC). After three days of hunting, she finally found one -- in Baltimore. We live in Massachusetts. Yes, she flew down, bought it, and drove it home. But I digress.)

Short supplies are probably costing the Blue Oval some sales -- not everyone is willing to hop a plane to buy a new car. But the good news for Ford is that the cars they're selling are loaded.

Small cars with big options
Options are where automakers make the big bucks. Leather seats, sunroofs, "infotainment" systems, high performance engines, and the like have big margins and add significantly to per-vehicle profits. Thanks to demand for popular options -- particularly Ford's acclaimed SYNC system -- the company's margins have been great in recent quarters.

SYNC, a complex "infotainment" system that Ford developed jointly with Sony (NYSE: SNE  ) and Microsoft (Nasdaq: MSFT  ) , has been a huge, profitable success. About three-quarters of Fiestas (Ford's entry-level car, remember) and Focuses are sold with SYNC and a premium stereo system, options that provide hundreds in profits per sale.

Even options like heated seats, which not long ago were found only in cars like Cadillacs and BMWs, are proving popular on cars like the Fiesta and Focus (including my spouse's new ride). The availability of options like heated seats in an "econobox" (and the fact that nearly half of Fiestas are sold with them) is part of a larger trend toward adding premium features to lower-end cars, a trend that other makers like General Motors (NYSE: GM  ) and Hyundai (OTC: HYMTF) are emulating.

The thinking has been that people who are downsizing for fuel-economy reasons might be willing to pay extra for a more deluxe experience in their new smaller cars, and that thinking has turned out to be spot-on. Ford's focus (so to speak) on interior comfort features and execution has proven to be a huge advantage -- the company says that a consumer who test-drives a Focus is more than 70% likely to buy one.

So should shareholders worry?
Yes and no. On the one hand, it's a great sign that an American automaker is seeing overwhelming demand for its small cars -- that's all but unprecedented, historically, and a big reminder of just how far Ford and Detroit have come in the last few years. And with incentives low and demand for options high, Ford's making plenty of money on those sales.

When I spoke with Ford CEO Alan Mulally a while back, he talked at some length about "right-sizing production" -- of eliminating overcapacity by matching production to demand. As a shareholder, I don't want to see Ford make big investments to add capacity that might not be needed when the market shifts (as it inevitably will) a year or three from now. That would be an expensive mistake.

But at the same time, I do want to see the company make the most of its hit products. It will be worth watching to see how quickly (or even whether) Ford increases production of its latest hits to meet demand.

Worried about the impact of higher energy prices? You're not alone -- but here's the good news: It's not too late to profit. In the new special report,"3 Stocks for $100 Oil," expert Motley Fool analysts name three outstanding companies that should benefit handsomely from rising oil prices. The report is available free of charge for Fool readers -- and here's your chance to get instant access.

Read/Post Comments (0) | Recommend This Article (7)

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.

Be the first one to comment on this article.

Compare Brokers

Fool Disclosure

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 1547050, ~/Articles/ArticleHandler.aspx, 10/22/2016 1:47:01 AM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...

Today's Market

updated 4 hours ago Sponsored by:
DOW 18,145.71 -16.64 -0.09%
S&P 500 2,141.16 -0.18 -0.01%
NASD 5,257.40 15.57 0.30%

Create My Watchlist

Go to My Watchlist

You don't seem to be following any stocks yet!

Better investing starts with a watchlist. Now you can create a personalized watchlist and get immediate access to the personalized information you need to make successful investing decisions.

Data delayed up to 5 minutes

Related Tickers

10/21/2016 4:00 PM
F $12.02 Up +0.05 +0.42%
Ford CAPS Rating: ****
GM $32.04 Up +0.29 +0.91%
General Motors CAPS Rating: ***
HMC $29.79 Up +0.12 +0.40%
Honda Motor CAPS Rating: ****
MSFT $59.66 Up +2.41 +4.21%
Microsoft CAPS Rating: ****
SNE $32.11 Down -0.61 -1.86%
Sony CAPS Rating: ***
TM $115.27 Down -0.87 -0.75%
Toyota Motor CAPS Rating: ***