As Ford (NYSE: F ) switches over from its 2013 model-year Fusion to the 2014 model, its poised to see a big jump in sales. The 2014 Ford Fusion is almost guaranteed to be a hit for two simple reasons.
First, the 2013 Ford Fusion has generated massive customer interest because of its bold design and premium options. Sales are up 16.5% year-to-date, despite significant supply shortages. Second, supply of the 2014 Ford Fusion will be much better, because Ford recently started producing the Fusion at a second plant in North America.
With a continuation of this year's robust demand and better supply, the 2014 Ford Fusion has a chance to challenge Toyota Motor's (NYSE: TM ) Camry sedan for the U.S. midsize car sales crown. This would be a significant accomplishment, considering that Camry has led the segment for 11 straight years (and is almost certain to lead again this year).
Ford took a calculated risk by adopting an aggressive design for the Fusion when redesigning it for the 2013 model year. While midsize cars have historically been very conservative in terms of styling -- and the new Toyota Camry is true to form -- Ford executives hoped to make the Fusion a more "aspirational" car. This bet has paid off in a big way, as demand for the new Fusion has been overwhelming.
The strength of demand for the 2013 Ford Fusion can be seen in the model's strong sales results for the first five months of this year. Through the end of May, Ford had sold 136,833 Fusions, up 21.7% year over year! Another indicator of strong demand is the Fusion's average selling price, which was $26,338 through the end of August. That was up 4.4% year over year and put the Fusion's ASP nearly 10% above the Toyota Camry's ASP for 2013.
With such strong customer demand, Ford's plant in Hermosillo, Mexico, couldn't keep dealers fully stocked with inventory. Ford Fusion sales suffered over the summer because of these persistent inventory shortages.
Supply improvements coming
Ford started to benefit from better Fusion supply last month. As a result, sales increased more than 60% compared with September 2012 (when the 2013 Fusions were just starting to hit dealer lots). Most importantly, though, Ford recently increased production by adding a second manufacturing plant for the Fusion.
Ford began building Fusions at its Flat Rock Assembly Plant in late August, thereby increasing Fusion production capacity by more than 30%. Fusion vehicles from the Flat Rock plant are expected to start arriving on dealer lots later this month. This will help bring supply back in line with demand in time for the busy fall car-buying season.
With additional supply, it should be easy for dealers to boost Fusion sales by another 10% to 20%, just based on the sales "left on the table" over the summer when dealers ran short of Fusion inventory. Depending on how Toyota reacts, Ford may have a chance to take the midsize car sales crown next year, for the first time in nearly two decades.
Foolish bottom line
Ford's plan to win with the 2014 Ford Fusion is very simple: make it just as good as the 2013 Ford Fusion, and then build a lot more of them. This is great news for customers interested in buying a Fusion. With more supply, potential customers are more likely to find a Fusion with the features they want in stock at a local dealer. Furthermore, once dealers have an ample supply of Fusions, customers will have more leverage to negotiate discounts.
For investors, this is also great news. There's no real risk to adding additional production capacity, because the level of customer demand has been so strong over the past year. While average selling prices may drop a little bit as Fusion shortages recede, the car will remain an important driver of profit growth for Ford.
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