Despite lingering economic concerns, U.S. auto sales have been strong, with sales of cars and light trucks (pickups and SUVs) up 14.8% in the first half of 2012.
That momentum looks set to continue. The analysts at TrueCar.com are calling for the "highest July since 2007," and their counterparts at Edmunds and Kelley Blue Book are also calling for a substantial gain.
What's driving that gain? I'll tell you what's not driving it, at least if these analysts' projections are to be believed: Big sales growth at Ford (NYSE: F ) .
A potential slump for the Blue Oval
Between the post-tsunami resurgence of Toyota (NYSE: TM ) and Honda (NYSE: HMC ) , aggressive sales efforts from Nissan and Volkswagen (NASDAQOTH: VLKAY.PK), an admirable reluctance to increase spending on incentives, and -- possibly -- some hard limits on manufacturing capacity that would take big investments to overcome, Ford's sales have been under pressure.
In a month when it foresees a 10.6% year-over-year gain for the industry as a whole, TrueCar.com sees Ford's sales actually slipping by 1.1% versus last year's numbers. Its peers are similarly pessimistic, with Edmunds and Kelley both predicting that Ford will be the only major automaker to post a decline in year-over-year U.S. sales in July.
That would be a frustrating development for shareholders, after strong truck and SUV sales carried Ford to a decent gain last month. But there are some important nuances behind the headline figures. TrueCar says that the retail sales increase will only be up 3% over July 2011. Fleet sales, on the other hand, are expected to be up significantly -- to account for 21% of total U.S. auto sales in July.
How much of that will be Ford? It's hard to say. While Ford has been a significant player in the fleet market this year, production constraints on key models may have led to a shift in emphasis. Ford may be decreasing its fleet sales to ensure that its dealers have enough supply. That would be a good thing for shareholders: Retail sales tend to have a higher margin than fleet sales, generally speaking.
But it might not work out that way. And if it doesn't, Ford will have some explaining to do.
Trouble for the General, too
Ford isn't alone in its sluggish sales growth. General Motors (NYSE: GM ) is also expected to report sluggish results in July, despite what TrueCar expects to be the third-highest level of spending on incentives in the industry, close behind Chrysler and Nissan. But while Chrysler's sales are expected to be up nicely, GM's are expected to be close to flat -- up a little, but only just.
GM's problems seem like they should be different from Ford's. While many of GM's products are a bit long in the tooth -- lots of replacements will be forthcoming over the next year or two -- and sluggish sales could reasonably be expected, Ford's product line is top-notch, the best it has ever had.
Ford, to its immense credit, has been determined to hold the line on pricing. Its incentives spending used to be comparable to GM's but has fallen sharply as the company has rolled out its newest models. This is a strategic decision, part of the vaunted "One Ford" plan that remade the company. Ford's goal is to build best-in-class vehicles, load them up with premium features, and ask (and get) premium prices. So far, it has worked: Ford has reported quarter after quarter of strong profits in North America.
But the flip side of that strategy is that rivals who are willing to undercut Ford's premium pricing may be able to make sales gains at the Blue Oval's expense. Is that what's happening? We'll find out more when the official July sales numbers are released later this week.
Thanks to sluggish growth at home and rising concerns about Europe, Ford's stock has been under pressure lately, dropping to levels not seen in years. But the company is still executing very well and is investing heavily for growth abroad. Have these short-term pressures created an incredible buying opportunity, or are there other hidden risks with the stock that investors need to know about? To answer that, one of our top equity analysts has compiled a premium research report with in-depth analysis on whether Ford is a buy right now, and why. Get instant access to this premium report.