Why Are Ford's Sales Lagging?

The market may not be loving their stocks, but buyers appear to be loving their vehicles: Despite grim economic predictions, all three of the Detroit automakers posted solid sales gains in September, with the market's overall pace the strongest seen since April.

Chrysler led the way with a 27% year-over-year sales gain, thanks to a surprisingly well-refreshed product lineup that is starting to gather momentum in the market. But the real story, at least from a Detroit perspective, is this: General Motors (NYSE: GM  ) posted big gains, while supposedly stronger Ford (NYSE: F  ) barely kept pace with the market.

What's behind that?

What's up with Ford?
Ford's sales were up 9% year over year -- not an impressive number, but not a bad one. More impressive was the level of Ford's incentive spending: down 9.9%, per Edmunds, strongly suggesting that the sales Ford did make were highly profitable ones. But lower incentives may have been part of the reason Ford's sales gains lagged its Detroit counterparts -- and that may not be bad news for shareholders.

Another reason Ford might be lagging: slow sales of the Focus. Ford's new Focus is a superb compact that outpaces competing entries from Toyota (NYSE: TM  ) and Honda (NYSE: HMC  ) -- it's one of the company's best cars ever. But September sales were down 24% over year-ago numbers, and that was another part of why Ford's overall results were less impressive than one might expect.

Ford executives said this was entirely a supply problem. Production constraints have limited the number of vehicles available, they say, but the situation should be resolved in October. This has been a refrain for Ford in recent months, although the company has been vague about the details. There have been rumors of parts-supply problems, but it's also possible that Ford simply misjudged demand for its new model.

But elsewhere, like GM, the Blue Oval saw nice gains. Sales of the big F-Series pickup were up 14.7%, and the compact Escape SUV, which is due to be replaced soon, posted a 41% gain. And the Explorer continues to shine: Launched earlier this year, the completely revamped SUV has become one of Ford's biggest hits, with sales increasing 203% versus those of its predecessor a year ago.

Ford's popular fuel-efficient cars also continue to do well. Like the Escape, the midsize Fusion is due to be replaced next year, but that hasn't deterred buyers, with sales up 22.6% over fine year-ago numbers. And the small Fiesta continued to post solid sales, with Ford citing particular strength for both models in West Coast markets -- long an import stronghold.

But those lost Focus sales surely didn't help.

Meanwhile, impressive strength from the General
The story at GM? Trucks. Although the General posted solid sales across the board, it was the big pickup trucks and SUVs that led the way. Overall, GM's sales were up 20% over September 2010, but trucks were up 34% -- this despite continued high fuel prices, and despite the fact that GM's truck models are arguably overdue for replacement.

The story here is probably a pretty simple one: Folks need new trucks. Thanks to consumers' reluctance to spend in the wake of the financial crisis, the average of vehicles in the U.S. market is now 11 years, a historically high number. Gas prices remain high, but they're below their peak -- and they've been high long enough that Americans have come to accept them as the new normal.

Meanwhile, sales of GM's recent hit products remain strong: The compact Chevy Cruze continued to post strong numbers, and sales of the Equinox crossover were up 33%. Downsides? Fleet sales have crept up a bit, to a still-OK 26% of GM's total U.S. sales, and incentives remain higher than I'd like -- but down 2.1% from last September's spending, according to Edmunds, which represents progress.

Long story short: GM's product line still has some gaps relative to competitors, but new products are on the way -- and meanwhile, the existing products continue to sell well without excessive incentives.

Is Detroit's window of opportunity closing?
Once again in September, Toyota and Honda posted year-over-year sales declines as supplies of key products continued to be short because of tsunami damage. But supplies increased over the course of the month, and Toyota at least may already be back up to full speed, or close. The Detroit Three, along with Hyundai (OTC BB: HYMTF.PK) and Nissan (OTC BB: NSANY.PK), have seen great sales gains in the U.S. (and elsewhere) while the Japanese leaders struggled to restore production in the wake of the tsunami.

With production restored, I expect Toyota to come out blazing with aggressive marketing and incentives in October -- but how much of its lost market share will it be able to reclaim? For all of the automakers, that is the multibillion-dollar question. Stay tuned.

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Fool contributor John Rosevear owns shares of Ford and General Motors. You can follow his auto-related musings on Twitter, where he goes by @jrosevear. The Motley Fool owns shares of Ford. Motley Fool newsletter services have recommended buying shares of Ford and General Motors. Try any of our Foolish newsletter services free for 30 days. We Fools don't 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 (7) | Recommend This Article (5)

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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 October 04, 2011, at 11:05 PM, sondo1313 wrote:

    "There have been rumors of parts-supply problems, but it's also possible that Ford simply misjudged demand for its new model."

    John, why not simply conduct a little research instead of merely repeating this rumor?

    It's the crux of your whole story. Are sales really "lagging"? Surely this deserves a quick look at Focus inventories, a call to the company, a visit to a dealer.

    Btw, Focus is doing great...it's just a new entry. This is typical launch progress. But do your own research.

  • Report this Comment On October 04, 2011, at 11:31 PM, MacAttack87 wrote:

    Last September Ford sold more than 6000 Mercury vehicles and that figure is included. Once those sales are removed from the picture combined Ford/Lincoln sales increased by nearly 20%.

  • Report this Comment On October 05, 2011, at 6:03 AM, TMFMarlowe wrote:

    @sondo1313: In order to buy a Focus hatchback with the not-exactly-weird combo of manual trans, SYNC, and heated seats, my wife had to fly 400 miles -- that's where the nearest one was. In the process of finding it, we talked to probably 40 dealers and got a pretty good feel for how the Focus is selling in the northeast US (extremely briskly, when they can get any, which they mostly haven't been able to). Last I checked, a few weeks ago, average turn for the Focus was something like 9 days. I think you can say I've done the research. Ford hasn't been making enough of them, for whatever reason. And this month, like last month, they said production would be up to speed shortly.

    Sales aren't "lagging" because it's not a good model. It's a great car. Sales are lagging last year's numbers because supply is not yet -- after several months in production! -- keeping up with demand. It's a weird (for Ford) failure to take full advantage of a new model's initial success.

    John Rosevear

  • Report this Comment On October 05, 2011, at 7:59 AM, JustMee01 wrote:

    The Focus situation is wierd. They cited summer shutdown as an issue. But, the comps were also effected by reduced sales of the prior model as its inventory waned. According to information provided on the sales call, the earlier model selldown is now complete and dealers are now better stocked with new model. October will be the month to watch to guage Focus, according to their guidance.

    It was a great month for F series, with a rebound in SAAR. Fusion and Fiesta sold well. Utes sold well. It was really just Focus and Taurus that were the softies. Ford's YoY numbers are lower because their YoY comps are tougher.

  • Report this Comment On October 05, 2011, at 9:07 AM, TMFMarlowe wrote:

    @JustMee01:Agreed, it is weird. I'm hoping Edmunds or somebody looks at Focus inventory/sales in their mid-month report. If the pipeline is really finally filing, sales should be up substantially. We'll see.

    Thanks for reading.

    John Rosevear

  • Report this Comment On October 05, 2011, at 2:18 PM, Milligram46 wrote:

    Ford Focus: Serious supply issues due to the manufacturing of dashboards. This has put constraint on the vehicle globally. Ford is selling every single Focus they get their hands on.

    Ford "Slow" Growth: Mercury - remember Ford's corporate numbers from last year include the now dead brand Mercury, and that is going to artificially lower the overall growth to the corporate numbers

    General Motors Truck Sales: Yes up last month, but down almost 50% from 2005 levels. For the second year in a row if you add up Sierra + Silverado they do not exceed F-150 stand alone sales. GM is off about 3.75% for the year of the pace of the F-150, even combining the Silverado and Sierra into one.

    General Motors Incentive Spending: Look at just the average incentive figure is only looking at half the information. The better way, that more and more analysts are starting to use, is looking at incentive spend per vehicle / average transaction price (ATP) to yield a percentage figure.

    For September 2011, Nissan Incentive to ATP was 10.7%, GM was 9.8%, Toyota was 9.7%, and Honda was 8.8%. GM has the highest transactional price by a wide margin compared to Ford, Chrysler, Honda, Toyota, Nissan, VW, and Hyundai. This is in part due to 3/4 ton and 1 ton pickup trucks that easily get north of $60,000, and the Cadillac and Buick divisions, and halo vehicles like the Corvette. With an ATP of over $33K, the amount spent in incentives related to the sales velocity is in the middle of the road for the industry, and about on par with Toyota.

    It's not voodoo math.

    Toyota Corolla: The refresh has been a major step backwards. According to Toyota full Corolla production returned to normal on June 6, 2011 - 16 weeks later inventory levels exceed 30 days, and are tickling pre-economic meltdown levels of 45 days, which Toyota prided itself on. Thirty days is thin, but Corolla sales are 30% off the mark. Every review has put it at the bottom of the pile with a coarse outdated engine, 4-speed automatic, cheap interior, and so-so chassis dynamics. Offerings from Chevrolet, Hyundai, Ford, and Kia are all vastly better, and the Jetta despite being panned in reviews is well received by customers.

    The real questions for the rest of 2011:

    Toyota insists that October is the return of year-over-year growth. Weak inventory will no longer be an excuse. The question will be is Toyota really wounded from weak product redesigns like the 2011 Corolla or is it all earthquake and tsunami

    General Motors Volt is a major success, even if they haven't sold a lot of them. The Cruze is riding high as the top car in its segment in large part due to Volt cross shoppers. GM insists that they will sell 10,000 Volts in 2011. They need to move about 6,500 units in three months to meet that claim. Reports are there are backorders for miles but on the other hand, there are a handful of large dealerships with multiple units in inventory. We'll know the truth soon.

    Tesla: Making lots of noise about the Model S, and the Beta's are here - however they also have their hand out again to the federal government for more money

    Ford: Is the Focus issue really inventory related, or is $29K for a fully loaded Focus pushing the edges on what Americans will pay for a C-Segment vehicle.

    Honda: Actually, IMHO in the most trouble. Product design is horrid, the 2012 Civic has been poorly received, and building a lot of products that answer questions no one has asked (Crosstour). The CR-Z and Insight both have landed with a thud, the Fit is getting old, the Accord is considered bloated, and Acura is considered absolutely ugly. Definitely have lost their mojo

  • Report this Comment On October 05, 2011, at 2:26 PM, TMFMarlowe wrote:

    @Milligram46, I always love it when you stop by. Thanks for the insightful comments. FYI I have an article on Toyota coming for tomorrow that hits the same angle you mentioned -- are the company's products still good enough to get the share they want without big incentives? (Or put another way... just as GM is finally turning into Toyota, is Toyota starting to turn into Old GM -- with second-tier products pushed to diehard loyalists via incentives?)

    I'll also have a separate article looking at Honda, for tomorrow night or Friday. Very bad situation there, as you say. I personally know three longtime Honda loyalists who are now driving new Fords. Amazing brand equity being squandered there.

    Thanks for reading.

    John Rosevear

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