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Ford Finds Strength in Small Car Sales

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Ford's (NYSE: F  ) big investment in smaller, fuel-efficient cars continued to pay off in November. The Blue Oval posted a 12% year-over-year retail sales gain for the month, led by a huge gain for its much-acclaimed Focus compact.

Introduced last year, the Focus has been a huge success for Ford almost everywhere it's sold, rivaling Toyota's (NYSE: TM  ) Corolla for the title of the world's best-selling car. But the Focus wasn't Ford's only sales success in November, as the Blue Oval showed strength in several segments.

More retail sales mean bigger profits
To be clear, not everything was rosy for the Blue Oval in November. Ford's overall sales gain, including retail and fleet sales, was a so-so 6%, well behind gains posted by key competitors like Toyota, Chrysler, and Volkswagen (NASDAQOTH: VLKAY  ) . Clearly, Ford's fleet business is underperforming its retail sales efforts.

This is an issue that we saw last year at this time, and as I said then, this is a really good "problem" to have. Fleet sales, particularly the government and commercial business that Ford has tended to emphasize lately, are good business. But retail sales are better, because they're more profitable. With Ford facing some production capacity constraints, putting the emphasis on retail sales is clearly the right move.

There are two reasons for that. First, vehicles sold at retail aren't hit by the bulk discounts offered to fleet buyers. Second, they tend on average to be better-equipped – to have more of the highly profitable options packages that have been so good for Ford's bottom line in recent times.

That makes Ford's shift toward retail growth a positive trend, one that should help offset concerns about the increasing share of smaller (and less profitable) cars in Ford's total sales. And the Blue Oval's small car sales are increasing quickly: Focus sales were up 76% over year-ago totals, and the new C-Max hybrid is rapidly gaining market traction.

Ford says November's results represent its strongest November for small car sales in 12 years. But not to worry: Ford's most profitable product line also saw big gains in November.

A big jump for pickup trucks
Ford's overall truck sales were up just 4% on the month, as overall numbers were hurt by the absence of the now-discontinued Ranger small pickup. But Ford's F-series pickups were up 18% – a very significant gain for the product line that drives an outsized chunk of Ford's profits.

What drove that? Good question. Rival General Motors (NYSE: GM  ) , which saw its own pickup sales decline by 8%, seemed to be pouting a bit when it blamed "unexpectedly high competitive incentive activity, which GM did not match" for its drop.

But Ford's overall per-sale spending on incentives, those "cash-back" or cheap financing deals regularly featured in TV ads, was actually down in November, according to estimates published by Toyota, which also saw strong pickup sales in November, did increase its spending modestly – but not nearly as much as GM did, according to TrueCar's analysis.

Ford executives attributed the F-series' success in November to market forces, a more likely explanation. Ford points out that the average age of a pickup on American roads is about 10 years at the moment, pickups are "need-based" purchases for the most part, and fuel economy is a key consideration for buyers – and Ford's pickups with the EcoBoost V6 have very good fuel-economy numbers, a point that Ford has been advertising heavily.

Strength in other segments
Looking strictly at the numbers, sales of Ford's midsized Fusion were down significantly on the month – but that's deceptive, the company says. The current Fusion is a brand-new model, introduced just a couple of months ago, and Ford says it is still working to build inventory at dealers.

Ford says that early indications on the new Fusion are very strong, as its "turn rate" – the amount of time cars spend on dealer lots – is the fastest in the Ford fleet at the moment, along with the C-Max hybrid.

What else was noteworthy? Sales of the Explorer were up 12.2%, as the well-regarded SUV continued its string of success. And somewhat improbably given the time of year, sales of the Mustang were up over 37% – continuing the model's strong run in 2012.

Ford has been performing incredibly well as a company over the past few years -- it's making good vehicles, is consistently profitable, recently reinstated its dividend, and has done a remarkable job paying down its debt. But Ford's stock seems stuck in neutral. Does this create an incredible buying opportunity, or are there 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. Simply click here to get instant access to this premium report.

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