Why Ford's Sales Were Strong in March

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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Fool contributor John Rosevear owns shares of Ford and General Motors. Follow him on Twitter at @jrosevear. Motley Fool newsletter services have recommended buying shares of Ford and General Motors and have recommended creating a synthetic long position in Ford. 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.


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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 April 03, 2012, at 11:26 PM, baldheadeddork wrote:

    I looked through the March numbers earlier today and I was really surprised at how far off the estimates were for GM, Toyota and Honda. The analysts missed by 18,000 (7%) on GM, 12,000 on Toyota (8%), and a nearly 10% wiff on Honda.

    Ford beat their estimates by just a couple hundred units, but the huge overestimate on GM, Toyota and Honda meant they outperformed marketshare estimates by sixty basis points. So F finishes up a couple cents for the day while GM gets crushed.

    (Someday, someone will have to explain to me how an analyst missing an estimate causes the market to punish the company that didn't offer the guidance.)

    Did you see the numbers for Volkswagen? Up 35% for the month and 41% YTD. Huge gains, but not huge volume. With this monster month VW has taken a slight lead over Mazda in the US market. They'd have to double their sales to catch Hyundai.

  • Report this Comment On April 05, 2012, at 6:04 PM, dockofthebay wrote:

    I own shares of Ford and a few things concern me right now.

    Ford expects overall US sales to increase this year, but Ford's market share to decline.

    Ford is spending heavily in China at the same time the Chinese economy is slowing down.

    Ford China is going to be introducing 15 vehicle models with 20 different engine and transmissions by 2015, according to the chairman of Ford China. That sounds nothing like a plan which stresses simplicity and economy of scale. "Ford One" must be inoperative in China.

  • Report this Comment On April 05, 2012, at 6:12 PM, dockofthebay wrote:

    I meant to say "One Ford" must be inoperative in China - not Ford One. Getting more confused all the time.

  • Report this Comment On April 09, 2012, at 10:42 AM, TMFMarlowe wrote:

    @dockofthebay: My understanding -- from Ford folks -- is that all (or most) of the upcoming China models are from what they call the "global portfolio", meaning they're models that are already planned or in place for the US and/or Europe. In other words, it's very definitely One Ford.

    They are looking at China as a long-term thing, and see the current slowdown as just a business cycle. There are still lots and lots and LOTS of people who don't own cars in China, and Ford plans to compete for their business later in the decade.

    U.S. sales... focus on profitability, not share. Share may be down but profitability *should* be up. The upcoming earnings call will be enlightening.

    Thanks for reading.

    John Rosevear

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