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To hear Ford (NYSE: F ) tell it, March was a great month. U.S. sales were up 5% versus strong year-ago numbers, for Ford's best March in five years. And the company's recent emphasis on fuel efficiency is paying off big in all segments, from small cars to pickups, as gas prices continue to rise.
But in a month when overall U.S. sales are likely to be up about 14% once all the numbers are in, and when many competitors are touting big double-digit increases as economic indicators continue to improve, Ford's 5% looks a bit ... scrawny. In fact, it's even less than the modest increase many analysts expected -- prompting some to suggest that Ford missed. Is the Blue Oval falling behind?
Not really. Here's why.
The numbers behind the numbers
Looking just at Ford's retail sales -- sales made by Ford dealers to the general public -- provides a somewhat rosier view, with the company posting an 11% increase versus year-ago numbers. For the first quarter, Ford's retail sales were up a solid 13%, according to the company's sales analyst, Erich Merkle.
To many minds, these are the sales that really count: Unlike fleet sales, which are often deeply discounted and made to customers who may have limited choices, retail sales represent sales won in the face of stiff competition -- and they're generally more profitable. An increase in retail sales relative to fleet sales is good news.
And while Ford hasn't released official figures, analysts believe that the company has significantly reduced its spending on incentives. Incentives -- those "cash back" or no-interest financing deals touted in TV ads -- are an effective way to boost sales, but they cut sharply into margins.
Ford, like the other Detroit automakers, used to rely heavily on incentives, spending an average of nearly $4,000 per vehicle sold, sometimes even more. Ford's spending has come down significantly in recent years, and a TrueCar report released on Tuesday suggests that it came down further in March. TrueCar estimates that Ford spent an average of $2,726 per vehicle on incentives in the month, down 2.8% from the year-ago month.
Lower spending on incentives and a reduction in fleet sales are good news for Ford shareholders: Both should contribute to an increase in Ford's margins, a priority for CEO Alan Mulally in 2012. But there's more good news under the hood: Ford's recent emphasis on fuel efficiency is paying off big.
The story of the month: Fuel efficiency
One of Mulally's biggest priorities since arriving in 2006 has been to increase the number and quality of Ford's fuel-efficient offerings. In previous periods of high gas prices, Ford, like General Motors (NYSE: GM ) , tended to lose sales to Japanese archrivals Toyota (NYSE: TM ) and Honda (NYSE: HMC ) .
Toyota and Honda were long seen as the leaders in fuel-efficient small cars. Models like the Corolla and Civic topped the best-seller and Consumer Reports recommendation lists year after year, while Ford's small cars were also-rans at best. That has changed: While Toyota and Honda are still fierce competitors, Ford has developed its own high-quality, fuel-efficient offerings -- and is winning plenty of sales.
The Accord-and-Camry-fighting midsize Ford Fusion sedan enjoyed its best sales month ever in March, Ford said, and the much-acclaimed compact Focus delivered its best March ever. Ford's big F-series pickups also had a strong month -- the model's best March in five years -- with fuel-efficient V6 engines accounting for 56% of total sales. According to Merkle, the F-series has more than 75% of the total market for V6-powered pickups.
The upshot: Fuel efficiency is a hot seller, and Ford has it
Ford Vice President Ken Czubay said on Tuesday that dealers continue to report exceptionally high demand for fuel-efficient options. That's no surprise, given rising gas prices -- but for Ford shareholders, the good news is that the company is prepared and doing pretty well in what has historically been a challenging environment, despite a headline sales increase that was less than impressive.
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