Is Ford Maxed Out?

As was widely expected, Ford's (NYSE: F  ) U.S. sales were down in April versus year-ago numbers. The automaker reported a 5% decline in sales versus its year-ago results, as the overall pace of industry sales appeared to slow somewhat from the high rate seen in the first quarter.

Ford's sales did come in a bit ahead of analyst estimates. And as Ford officials pointed out -- and others have said in recent days -- that decline is arguably a little misleading. But it's clear that April was something of a mixed bag for the Blue Oval.

Monthly results that require some interpretation
Why is that decline arguably misleading? Because of a calendar quirk: Speaking to analysts and media on Tuesday, Ford vice president Ken Czubay noted that this past April had three fewer "selling days" -- many car dealers close on Sundays and holidays -- than April of 2011. Correcting for that on a "daily selling rate" basis, Ford's sales were up 7% versus a strong year-ago month, Czubay said.

Ford's sales highlights for the month followed a familiar theme -- fuel efficiency:

  • Strong car sales. Ford's soon-to-be-replaced midsize Fusion sedan had its strongest April ever. And the compact Focus continued its recent sales strength, up 13% versus year-ago numbers. Sales of the subcompact Fiesta were down, but Ford officials suggested that that was due to the strength of the Focus, and pointed out that the current Fiesta-to-Focus sales ratio was roughly in line with industrywide subcompact-versus-compact sales.
  • Fuel-efficient pickups. Ford has offered a turbocharged V6 version of its mainstay F-150 pickup for a while now, and it has recently posted big sales as buyers seek fuel efficient options. Overall, F-series pickup sales were up 4% in April, a surprise given high gas prices. For that, Czubay credited the "EcoBoost" turbo V6 package, saying that sales in April were nearly double last year's totals.
  • Efficient SUVs. While sales of the about-to-be-replaced compact Escape SUV were down -- its production has ended, and Ford's production lines are now being retooled to produce the all-new 2013 version -- sales of the Edge and Explorer were strong. Year to date, Explorer sales are up 12% over very strong year-ago results.

Long story short, Ford's best recent products -- the Focus and Explorer -- continue to post strong results, and its mainstay trucks have held their ground. But Ford's market share for the year is still down over year-ago numbers, as competitors from Chrysler to Toyota (NYSE: TM  ) posted solid year-over-year gains, and that has raised some concerns.

About that loss of market share...
Ford officials have suggested in recent days that the company's loss of market share is due to supply constraints -- simply put, that they can't make enough vehicles to meet demand. The company has announced that it is adding extra shifts, and plans to add an additional 400,000 vehicles to this year's production plan, starting this quarter.

But Ford's own data raises questions with that line of argument. First, its inventories were up a bit: 66 days' supply in April, versus 58 days' worth in March. Second, and somewhat surprisingly, Ford's fleet sales were up in April relative to its total. Ford sales analyst Erich Merkle said on Tuesday that fleet sales represented 37% of its April totals. Fleet sales are, generally speaking, less profitable than retail sales, and conventional wisdom would suggest that an automaker with constrained capacity would focus on the most profitable sales.

But, Ford officials pointed out that looking at fleet sales on a month-to-month basis can be problematic. Fleet sales in any given month are often the result of commitments to major customers that are made months in advance. What's more, Ford's fleet sales so far in 2012 are down a bit. Merkle noted that the company's fleet sales for the year to date represent 33% of the company's U.S. total, down a bit from 34% in the year-ago period. Additionally, Merkle pointed out, Ford's (more profitable) commercial fleet sales are up, while its (less profitable) rental-car sales are down.

That's a fair argument, and we might well be able to write the decline off to capacity constraints -- coupled with some competitive pressures from post-tsunami Toyota's resurgence -- once all is said and done. But speaking as a Ford shareholder, I'm not completely reassured.

Is it time to worry about Ford's "engine"?
So should shareholders worry? Not yet: Ford's first-quarter profits in what CEO Alan Mulally calls the company's "engine," its North American division, were the company's highest in many years. Clearly, whatever the Blue Oval is doing in the U.S. market has been working pretty well. But while General Motors' (NYSE: GM  ) recent sales declines can be written off to an aging fleet of products, Ford's is a little harder to understand -- and it'll bear careful watching as the year continues to unfold.

Rising gas prices may be holding Ford's share price down -- but meanwhile, the oil industry is reaping big profits. To learn more about an energy stock that appears poised to win big, grab your special free report from The Motley Fool.

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 (11) | Recommend This Article (9)

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 May 01, 2012, at 7:38 PM, dmenace1 wrote:

    I happen to work at a Ford dealership. I can verify from firsthand experience the "shortage" of new vehicles.

    Namely we cannot get any numbers of Fiesta, Focus,

    Edge, Explorer, Exoboost (v6) F150 pickups. We are also making money on the new Fords. For those of you not in the business that is not a "duh" moment. New car business is highly competitive with any number of sources citing what the dealer pays. The customer in turn feels that since he knows what we pay, the jig is up so to speak, he should pay that.

    Another point not mentioned is that Ford is doubling their capacity in China.

    Why this company has a PE of 2 is baffling to me. I continue to buy.

  • Report this Comment On May 02, 2012, at 2:38 AM, EllenBrandtPhD wrote:

    Ford's stock has been Bear Raided with impunity - mostly via derivatives, IMO, not by actual selling - because of Tiny Terror Cramer's incessant, malicious bashing the past three months. His behavior has been nothing short of disgraceful, especially as he continues to tout things like $200 fast food purveyors, limp-wristed handbag designers for zillionaires, yoga clothes, and Internet stocks without profits - a la 1997. But one of the most important industrial companies in America, a symbol of job creation, the multiplier effect, and the comback of US manufacturing is scorned and stomped on?

    I don't understand exactly why Tiny has taken such a hatred to this company and this stock.

    But that he has done so - even in the face of a solid earnings beat last week on both the top and the bottom lines, plus the impressive and faster than expected ratings upgrade to Investment Class - shows exactly what is wrong with this market now - and this country.

  • Report this Comment On May 02, 2012, at 2:41 AM, EllenBrandtPhD wrote:

    Despite the above, I think the Shorts have about shot their wad, especially if the PPTs really want to stage a spring rally in the general market.

    Since the analysts who cover Ford are still overwhelmingly Bullish, it is high time - like TODAY! - that several of them come out of the woodwork and reiterate their Buy or Strong Buy ratings and their stock price targets - many over 16.

    Look how effective one little comment from Dick Bove was with BAC on Tuesday.

    Ford Boosters - we are waiting for you.

  • Report this Comment On May 02, 2012, at 2:58 AM, garifolle wrote:

    Strange argument:

    "Ford vice president Ken Czubay noted that this past April had three fewer "selling days" -- many car dealers close on Sundays and holidays -- than April of 2011.

    Isn't this true for ALL car dealers?

    @ Venerability:

    So many if not all analysts were bullish about Ford.

    Crying "Bull" too often has the same effect as crying "Wolf!"

    If you are long, decide on your own to hold or not, if you (like me) are waiting to buy, wait until the stock is showing renewed and reliable strength.

    I do not think that April sales are an important factor, this is only diversion.

    The real problem are the big investments that Ford made with the hope to take a market share in China and in Europe.

    This is just not happening and (IMHO) will not happen before long.

  • Report this Comment On May 02, 2012, at 7:35 AM, TMFMarlowe wrote:

    @garifolle: The shorter selling days argument does indeed apply to everyone. Look at everyone else's results, and then compare the y-o-y increases to the last few months'. It's interesting. I'll have more on that in an article later today (Wednesday).

    Thanks for reading.

    John Rosevear

  • Report this Comment On May 02, 2012, at 9:50 AM, Smalls62 wrote:

    Well written John. Inventory number begs a person to wonder how they can be short on vehicles. The generalization might be a select three or four models they are actually short on production runs.

    Ford is going to lose some market share and is a given as the japanese car makers (and finally Chrysler getting back to historic levels) are pushing back into their old turf. Even with a small decrease in market share Ford is still selling more vehicles on pent up demand. Maintaining profit margin is as important as selling numbers. Ask Government Motors how well it worked out for them being the auto sales leader. They shouldn't even be in business.

    A ton of media with misleading or just plain ignorant reports. Ford running a printing press on depressed global sales across the board....even still depressed in the U.S. although recovering.

  • Report this Comment On May 02, 2012, at 9:55 AM, Smalls62 wrote:

    John,

    One more item. Did you notice the language within Moody's new review of Ford?

    <<The positive rating outlook reflects our expectation that Ford will CONTINUE to generate credit metrics that are supportive of a low investment grade rating, and that the company will maintain ample operating and financial flexibility to contend with potential downturns in key markets.>>

    "CONTINUE" to me indicates Ford is already currently generating metrics supportive of investment grade. Why are they not then issuing a Baa3 - investment grade rating? Something just odd with the statement. For Moody's to not place the Baa3 when the metrics are currently present is suspect. Any ideas John?

  • Report this Comment On May 02, 2012, at 10:44 AM, TMFMarlowe wrote:

    @Smalls62: I did see that thing from Moody's. I want to say they're just being cautious, but... I dunno. It is kind of strange, especially since it seems clear to everybody that the formal upgrade is inevitable absent some major economic calamity at this point.

    As for the rest... the company's first-quarter results in North America give them the benefit of the doubt for the moment, as far as I'm concerned. But I'm watching closely, and I'm sure you are too. Focus supplies are clearly tight, and Fusion inventories will be thin as we approach the model changeover (and for a little while afterwards). But... meanwhile, that inventory number has crept up, even as Escape is being sold down. I'll keep digging. More to come.

    John Rosevear

  • Report this Comment On May 02, 2012, at 11:27 AM, BKlounge22 wrote:

    For those that follow Ford closely, is there any reaction to their announcement related to their pension plans to offer lump sum payments to all participants going forward in addition to the annuity options?

    This is the first time such an offer has been made to current retirees outside of a pension plan termination.

  • Report this Comment On May 02, 2012, at 11:27 AM, Smalls62 wrote:

    Cautious is hogwash if that is what Moody's is doing. If Ford is performing on investment grade metrics then Ford should be awarded that grade. No different than a student receiving a B grade when they have done all the work to earn an A. Moody's being "cautious" is suspect. Does someone have their dirty fingers in Moody's?

    Keep in mind the cost savings and advantage Ford will have with much cheaper financing costs over GM. Should sell more cars when Moody's quits being "cautious" as Ford can offer cheaper financing programs.

  • Report this Comment On May 02, 2012, at 11:58 AM, TMFMarlowe wrote:

    @Smalls62: I hear you. It surprises me too.

    @BKlounge22: I think "cautious optimism" is the right reaction. It's a voluntary buyout, so its impact will depend on the participation level, but it's a promising -- and bold -- initiative that could work out very well for them (and will be widely imitated if so). I'll be watching closely for any progress/status reports on that front from Ford in coming months, and will of course share them here.

    John Rosevear

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