Ford Treads Water as Auto Sales Stay Muted

It certainly wasn't a bad month, at least from an industrywide perspective: U.S. car and truck sales were up 7.5% in October over year-ago totals, giving the auto industry its best U.S. sales rate since February.

But those results fell short of some analyst estimates, which had suggested that October could be the best month for autos since 2009. And experts -- including those at automakers -- are now warning that monthly sales gains are likely to be more modest as we head into 2012.

But some automakers have been able to make hay in this less-than-sunny environment -- while others have continued to struggle.

Toyota and Honda: Troubles linger
Toyota
(NYSE: TM  ) executives, and to some extent their counterparts at Honda (NYSE: HMC  ) , had been telling us that October would see the beginning of their U.S. sales turnarounds. Tsunami-ravaged production facilities are back up to speed, they said, inventories are coming back, and an aggressive sales push was planned. Finally, the Japanese giants would be in a position to aggressively reclaim lost market share.

It didn't work out that way. Toyota's U.S. sales were down 7.9% from year-ago totals, a drop that executives blamed in part on a lower-than-expected supply of Corollas. That beat some analysts' estimates but had to be deflating given the expectations set by Toyota's managers. A TrueCar analyst speaking to Bloomberg said that Toyota's (and Honda's) sales pace had been strong until the last week of the month, when churning stock markets and a surprise East Coast snowstorm may have contributed to a sales slowdown.

That sales slowdown didn't hurt key rivals Nissan (OTC: NSANY) and Hyundai (OTC: HYMTF), which saw sales rise 18% and 23%, respectively. Nissan has done a good job of taking advantage of its Japanese rivals' production issues, as has Hyundai -- where strong new products have driven significant U.S. sales gains in recent months.

Those gains may continue. Toyota and Honda may well continue to struggle with U.S. inventory, thanks to disruptions caused by widespread flooding in Thailand. Already the floods have disrupted both automakers' supplies of critical electronic components, forcing both to curb production in the U.S. and elsewhere, and Honda has warned its dealers that the disruptions could continue for several months.

A mixed bag for Detroit
Ford
(NYSE: F  ) has also seen some production disrupted by the floods, though so far the Blue Oval's issues have been minor and mostly affect vehicles sold outside of the United States. Ford posted a 6% sales gain in October, driven by the continued strength of truck and SUV sales. That's both good news and bad news: While trucks are typically higher-margin items, and an increase should drive a welcome boost for Ford's bottom line, Ford's car sales were actually down year over year.

Ford may have lost some ground in car sales in recent months as supplies of its white-hot Focus compact were constrained by early production issues, but the company said last week that those issues had been largely resolved. The Focus and its smaller sibling Fiesta continue to sell well for Ford, but a shift in buyer preferences back toward larger cars -- and greater supplies of Toyota's Corolla -- may dent their effect on Ford's sales totals over time.

Ford's aggressive new-product cadence is continuing, with all-new versions of the midsized Fusion and popular Escape SUV due soon. Assuming that both are up to Ford's recent (very) high product standards, both should help draw showroom traffic and sales for the Blue Oval.

Meanwhile, sales were almost flat for General Motors (NYSE: GM  ) , which saw a 1.8% gain on the month versus its (very strong) October 2010. While there were some bright spots in its sales report -- the brand new subcompact Chevy Sonic has become GM's fastest-selling model -- the General is feeling the effects of Toyota's resurgence in some areas. The Chevy Cruze, which had led the U.S. compact-car sales charts since May, was finally overtaken by the longtime top-dog Corolla. And somewhat surprisingly, Chrysler continued its string of eye-popping year-over-year gains, posting a 27% increase on the strength of Jeep and several heavily revised new models.

A cautious outlook going forward
Overall sales totals in the next few months are unlikely to grow much from here, though individual automakers (Toyota, for example) could post sizable gains. GM CEO Dan Akerson has already expressed concern about the prospects for auto sales in 2012. But his counterpart at Ford, Alan Mulally, recently took a somewhat more optimistic view, saying that he expected "moderate" growth around the world in 2012.

Assuming that Europe avoids an economic meltdown, Mulally's expectation is probably reasonable. Edmunds' ace economist Lacey Plache expects U.S. auto sales to total about 13.5 million in 2012, an incremental increase over expectations for this year. Plache expects continued low interest rates, somewhat looser credit, and continued "pent-up demand" from consumers who haven't bought a new car since before the recession started to contribute to gains, but warns that continued economic sluggishness is likely to keep those gains muted.

Similar stories are likely to play out in other global markets, even China, where an expected slowdown could be a net boon, leading to a more sustainable long-term growth rate. It could be a lot worse: The major automakers have proven that they can now generate good profits even in this subdued sales environment. But even as the worst of the economic crisis continues to fade in the rearview mirror, it's clear that the long-hoped-for return to pre-crisis auto sales rates isn't happening anytime soon.

Worried about the effect 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.

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 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 (1) | Recommend This Article (1)

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 November 02, 2011, at 4:49 PM, sbehel wrote:

    Yeah, but they have us all looking and the wanting begins!!

Add your comment.

DocumentId: 1582534, ~/Articles/ArticleHandler.aspx, 4/16/2014 9:36:26 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...


Advertisement