Is Toyota's Resurgence Hurting Ford?

Are Toyota's (NYSE: TM  ) sales finally rebounding?

It looks that way -- or so say the analysts at TrueCar.com. TrueCar just released its U.S. auto-sales forecast for April, and it predicts a nice jump for Toyota.

But it's a jump that could be coming at the expense of key competitors -- including a surprising prediction of a decline for Ford (NYSE: F  ) .

Big numbers that need some context
I should make this clear up front: It shouldn't be much of a surprise to see Toyota's sales surging in April, or in the next several months. After all, the tsunami that hit Japan last March led to several months of production disruptions for the Japanese giant. Toyota had already lost about 500,000 units of production by early May last year, and disruptions would continue for months. Just by having production back to normal, the company's year-over-year sales comps should look quite impressive as 2012 unfolds.

That said, if TrueCar's projections are on the money, it's looking as if some of Toyota's competitors are getting hit harder than others by the company's resurgence. TrueCar sees Toyota's April sales up a hearty 14.8% over year-ago numbers, while Ford, General Motors (NYSE: GM  ) , and Honda (NYSE: HMC  ) are all projected to show a year-over-year decline.

Of the three, GM is predicted to show the worst result -- a 10% year-over-year sales drop. While that's sobering for GM shareholders, it's not a huge surprise: GM is in the midst of a major product-line overhaul, scrambling to replace aging models that have been overtaken by competitors. The General's spending on incentives -- those "cash back" and cheap financing deals that dealers love to advertise -- is expected to be the highest of the major automakers, TrueCar says, as GM treads water while waiting for more new products.

Some concerns for the Blue Oval
Honda's projected sales decline can be chalked up to aging products and, perhaps, continued production hassles. In addition to the problems posed by the tsunami, Honda has struggled with parts shortages resulting from plants damaged by flooding in Thailand late last year. Sales of the Civic compact have been strong in recent months, but other models have lagged.

But Ford's projected decline of nearly 4% is a little more puzzling: Ford's product line is as strong as anyone's at the moment. If TrueCar's projection pans out -- and it's worth mentioning that Edmunds' Jeremy Anwyl has also projected a big drop for Ford in retail market share in April -- there are a few possible causes:

  • Competitive realignment. Toyota's gains, likely fueled by strong sales of its new Camry and hot Prius lineup, have to come from somewhere. Ford's Camry competitor, the Fusion, is an aging model that will be replaced this fall. While Fusion sales have been strong in recent months, it's possible that a decline in sales may just be par for the course.
  • Reduced incentives spending possibly hurting sales. TrueCar sees Ford's incentives spending falling nearly 10% in April versus last month's levels, putting it well below spending at the other U.S. automakers and Nissan (OTC: NSANY.PK). With TrueCar projecting a big sales increase for Nissan, it's possible that Ford is simply losing some price-conscious buyers.
  • Reduced fleet sales. Ford's fleet sales have been high-ish in recent months. A fall back to lower levels could be part of a decline in overall sales -- and would be in line with Ford's goal of focusing on the most profitable kinds of sales, a goal that includes a reduction in sales to fleets.

Of those three possibilities, the impact of reduced incentives is particularly intriguing. Reducing incentives spending has been a big priority for Ford over the last couple of years, possibly even more so in recent months. Reduced incentives spending could be costing Ford some sales, but it should also be improving the company's margins -- creating the possibility that Ford could be making more money while selling fewer cars. That said, it seems likely that Toyota's resurgence is having a significant impact as well.

Of course, this is just speculation at this point. We'll know more after Ford releases official numbers and makes key executives available for comment next week. Stay tuned.

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Fool contributor John Rosevear owns shares of Ford and General Motors. Follow him on Twitter at @jrosevear. The Motley Fool owns shares of Ford. 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.


Read/Post Comments (3) | Recommend This Article (4)

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 April 25, 2012, at 9:54 PM, air1001 wrote:

    Really?

    Not a word in the entire article about the current production plant change-overs for the new Mustang, new Taurus, new Police Interceptors, new Flex, all-new Fusion and all-new Escape?

    In addition, let's remember that the Ranger, Crown Victoria and Town Car went out of production in late November.

    Also, remember that Ford is investing in the Flat Rock, MI plant for additional (new) Fusion capacity when Mazda 6 sedan production moves to Japan in July.

    Let Ford ramp up on the new product and go for a fair fight before another cheap-shot article like this.

  • Report this Comment On April 26, 2012, at 1:03 PM, TMFMarlowe wrote:

    Nice try, but some of those changeovers (like Fusion's) are weeks or months away, and others like the Mustang's are just minor model-year updates. In any event, I don't think Ford is losing sales (if in fact they are -- these are analyst forecasts) because of low inventories, and it's hardly a "cheap shot" to speculate about what might be happening if these forecasts are accurate.

    Remember that for most of us, Ford is an investment. It's not a sports team -- blind cheerleading won't work out in your portfolio's favor over time. But if that's what you need, I'm sure the Mustang forums can help you out.

    John Rosevear

  • Report this Comment On April 29, 2012, at 12:38 PM, baldheadeddork wrote:

    I remember a piece very similar to this last month - analysts (then it was KBB) predicted a big surge for Toyota and GM in March and that would lead to an erosion of market share for Ford.

    Except the analysts were wrong. Their predictions on Ford were right, but they totally wiffed on GM and Toyota. (I know, the usual way to write that would be "GM and Toyota failed to hit estimates", but one of my new year's resolutions is to point and laugh at the analysts when they fail instead of blaming the companies for an outsider's mistakes.)

    With the uncertainty in the overall economy this month I wouldn't bet my lunch money on any estimates for April. But - and I'm not ragging on you, John - why does anyone pay attention to these estimates in the first place? Monthly sales are the least useful statistic for investors in the entire auto industry. They say nothing about average selling price, fleet share or profitability, and they "predict" what's going to be announced just a few days later. The only value I can see in these calls is if you're a trader looking to move on market reaction to the actual numbers. If I'm missing something. please explain, but as an investing tool I think these estimates are worse than worthless.

    About Toyota's resurgence - at what point does everyone realize it's just not happening? The "all-new" and heavily marketed Camry is barely outselling an Altima that is only slightly younger than dirt. By year's end it will be against an all new Altima and Fusion that are phenomenally good and (unlike the Sonata) will have the production capacity to eat Toyota's lunch. Look at how the Corolla is doing these days against newer and better competition. Why isn't that going to be the Camry's fate a year from now?

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